Are high interest rates the new normal for 2024 auto loans?
If you have looked for a car recently, you’ve probably been lamenting the interest rates that have cropped up over the last two years. Right now, average used car loans are pushing past 11% (or 7% for high credit scores)1, when you could get half that only a few years ago!
A lot of people expect interest rates to drop significantly over the next few years back to “normal” rates, but there’s a part of the data they’re missing. The low interest rates from the 2010s were already rising before the pandemic.
Interest rates in the 4-5% range may have been normal for a time, but higher rates like the 8% we’re seeing now is much more in line with records from the 1990s and early 2000s.
Although 48 month loans aren’t as common these days, the 60 and 72 month interest rates are similar while the 48 has a longer record in the Federal Reserve Economic Data.
It’s possible that we’re moving to a new normal interest rate in the 7-9% range instead of the old lows. Although the Federal Reserve stated they would cut interest rates in 2024, how low will it go? Some estimates are as low as only a 0.75 drop from the Fed. How much would that affect car loans?
On a $30,000 auto loan (60 month term), dropping the interest from 7% to 6% reduces the monthly payment from $594 to $580. The total difference is less than a thousand dollars over the life of the loan.
Conclusion
So, is it worth waiting for lower interest rates?
Maybe.
Although it’s likely that interest rates are going to drop in 2024, the savings are not as drastic as some might guess. However, if the type of car you’re looking at increases in price, you’re in a bad spot. If that $30,000 auto loan goes up by only $1,000, you’re going to be worse off even if the interest rate dropped from 7% to 6%.
You’ll also be going much of the year without the car you’ve wanted. How much is that worth to you? Is $14 a month really worth waiting 6-12 months to get a car? If you find a great deal now, you may want to jump on it instead of waiting for interest rates to change in the future.
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