HomeIndustriesRising Auto Loan Rates Threaten Car Sales

Rising Auto Loan Rates Threaten Car Sales

Auto dealers are claiming that interest rates are now the number one factor that is curbing their sales volumes. This comes after the Federal Reserve continued its tight fiscal policy with a 25 basis point interest rate hike in March.

Following the Fed’s interest rate increase, the average interest rate on loans for new cars spiked to 8.95%, compared to just 5.66% at the same time last year. In addition, average car prices are approaching $50,000. This rise has driven auto loan repayments to $784 per month on average; a $177 per month increase since March 2020 at the start of the pandemic.

While J.D. Power and LMC Automotive forecast a 7.3% growth in auto sales in the first quarter, the rise in auto loan rates is expected to slow the pace of sales growth.

“A lot of these things that appeared to be tailwinds at the very beginning of the year have rapidly turned into headwinds,” Jonathan Smoke, Cox’s chief economist told reporters. “Anybody that tells you they have a firm view of where we’re headed is, I don’t know what, they’re smoking something.”

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