Fed action drives down rates on car loans

Fed drives down auto rates
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Fed drives down auto rates

Thanks in part to the Fed, it’s a good time to be in the market for an car loan.

Interest rates on auto loans are at historic lows, with the Bankrate average for a 60-month new car loan bottoming out at 5.22 percent as of Jan. 25. The Fed’s new federal funds rate projection should only help to drive those rates lower, says Paul Taylor, chief economist for the National Auto Dealer Association in McLean,Va.

The Fed’s move “affects expectations about the market, so it would follow that it would help keep rates low. So it is helpful,” Taylor says.

The Fed’s rate-setting power is especially strong for car loans, since they are for shorter terms than other loans, Taylor says. The Fed’s announcement means that auto buyers have years of historically low rates ahead of them.

As if that weren’t enough to put a smile on a car buyer’s face, that dynamic is currently being reinforced by foreign investors seeking safety from economic trouble in Europe.

“The flight to safety there should bring Treasury bond rates lower and therefore short-term interest rates lower,” Taylor says. “The outlook for finance for light-vehicle purchases is excellent over a multiyear horizon.”