federal reserve

8 ways the Federal Reserve's interest rate decisions affect your life

Driving auto loan rates
Driving auto loan rates | Tetra Images/Getty Images

Driving 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% 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%. 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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