Drivers have been met with headaches and high prices at the dealership and loan offices over the last year due to steep vehicle prices and high interest rates. While this increase is not predicted to disappear anytime soon, rates will likely drop slightly for those with healthy credit, predicts Bankrate Chief Financial Analyst Greg McBride, CFA.

The beginning of rate cuts and averting a recession will be the keys to lower auto loan rates in 2024 — at least for borrowers with strong credit profiles. — Greg McBride, CFA | Bankrate Chief Financial Analyst

However, those with weak credit profiles should expect double-digit interest rates to persist in 2024.

  • The highest auto loan rate in 2023 was 8.32 percent for a four-year used car loan in early December.  
  • The lowest auto loan rate in 2023 was 6.15 percent for a four-year used car loan in mid-January. 
  • Bankrate’s expert predicts five-year new car loan rates will reach an average of 7.0 percent and four-year used car loans, 7.5 percent by the end of 2024.

What happened to auto loan rates in 2023

In the past year, borrowers have faced the harsh reality of expensive monthly payments due to high interest rates. For many, these payments proved too expensive. Auto loan delinquency reached its highest rate in almost thirty years.

In early 2023, average rates for new and used vehicles were 6.58 percent and 11.70 percent, respectively, according to Experian. The third quarter brought similar rates, 7.03 percent for new and 11.35 percent for used.

High vehicle prices made for an even more challenging scenario for drivers in 2023. But though vehicle prices remained high during early 2023, they have dropped from record-high 2022 price tags.

The average used vehicle in December was $26,091, compared to $27,143 in December 2022, according to Cox Automotive. Vehicle inventory is up 2.4 percent month-over-month. These combined factors mean buyers should see more manageable prices in 2024. Similarly, new vehicle inventory is at its highest level since early spring 2021.

Strong credit borrowers may access more competitive rates

Although several factors drive interest rates, including moves made by the Federal Reserve, your credit has the most influence on the rate you’re offered. For example, prime borrowers in the third quarter secured an average rate of 6.88 percent for new cars compared to subprime borrowers with an average of 11.86 percent, according to Experian.

McBride shares that while the high-rate environment will persist, rates will ease for most borrowers in 2024. Increased competition between lenders may help drivers secure a good rate.

However, he warns, “don’t expect auto loan rates to fall enough to offset the increases we’ve seen over the past couple of years.”

The Fed will jumpstart the move with rate cuts, but in the absence of a sharp economic downturn, competition between lenders will rev up a bit, adding some fuel to the downward trend by year-end. — Greg McBride, Bankrate Chief Financial Analyst

When asked what those with poor credit scores should expect in the coming year, McBride admits it will be a more challenging road ahead.

“Right now … for those who have weaker credit profiles, your credit is tight. Interest rates are really high, well into the double digits,” he explains, and “that’s not likely to change materially in 2024.”

But it’s not all doom and gloom for drivers still working to improve their credit score. The hope, McBride explains, “is that if the economy averts a recession, that there’s the potential that credit will tighten further or that it could even loosen up a little bit in the latter portion of the year.”

Next steps for consumers

The truth is, there is no perfect time to finance a new vehicle, and expensive costs can make it challenging for some to find a good deal. But McBride has simple advice for shoppers.

“The biggest step to move the needle is to improve your credit right before you’re in the market for an auto loan,” McBride says. “You could literally cut your rate in half just by improving your credit standing and putting yourself in a better position to qualify for more competitive rates.”

Follow these tips to keep your budget healthy and find the best deal on your car purchase.

  • Stay current on credit card and loan payments — a history of timely payments boosts your credit score, qualifying you for lower interest rates.
  • Shop with a few auto loan lenders to see which offers you the best deal.
  • Take advantage of any seasonal deals dealerships offer.
  • Be flexible. With less inventory, you may need to come prepared with backup car colors or models.
  • Expand your search to several dealerships and research MSRPs before you head in for a test drive.