Fed drives auto loan rates
The federal funds rate chiefly influences short-term interest rates, because it's a rate on money lent overnight between banks, but it also trickles through to medium-term fixed loans, such as auto loans.
"The rate the Fed sets ends up affecting almost everything in our economy," Reese says.
Whether the lender is a credit union, bank or other institution, it will price auto loans relative to the prime rate, which moves up and down in sync with the federal funds rate.
If a bank is charging its customers 4.64 percent for a 60-month loan on a new car, and the federal funds rate increases by a half-percentage point, the lender will bump up the rate to about 5.14 percent. Auto loans also benefit from being sold into the secondary market, making more investors' dollars available to finance your car purchase or refinancing.
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