Latest Updates on Auto Loan Interest Rate Increase
Like many Americans, you might wonder what’s going on in the world at the gas pump, the grocery store, and the parking lot — all places where inflation is evident. Right now we’re seeing a 40-year high rate of inflation that’s really hitting Americans in their pocketbooks. The Fed is raising interest rates to help deflate this situation, but how could it this affects you in 2022? We’ll take a look.
How do interest rates and inflation affect you? The consumer price index (CPI) is a measure of price changes over time. In other words, how much consumers spend on average on a number of goods and services like food, energy and gasoline. According to the New York Times, the CPI rose 7.9% in February. This is the fastest inflation growth since 1982.
For you, that means you’re seeing prices go up on everyday items, and you’re seeing them go up quickly. Demand for these items is on the rise, impacted by tight supply chains and global events. But the prices remain high when people are willing to pay them.
This is where the Federal Reserve comes in. Interest rate hikes are fighting rising inflation, and the Federal Reserve took its first step toward slowing inflation with a March 16 rate hike. The quarter-percentage-point hike is the first federal rate hike. since December 2018. This now places the benchmark interest rate range between 0.25% and 0.50%. The Fed is proceeding with caution in light of recent global events, but has scheduled rate hikes at each of its next six meetings this year. Borrowers could immediately start seeing these increases when applying for consumer loans.
When the federal benchmark rate goes up, it means the rate at which banks lend money to each other goes up, and everyone will see an increase in the interest rate you pay on things like mortgages and car loans. With more expensive borrowing, consumers and businesses are slowing down investments that help slow the economy. This causes demand to fall and prices to follow. It could also help alleviate supply chain issues that help keep prices high.
Rising interest rates should slow economic growth and lower inflation, without causing a recession. According to CNBC NewsFederal Reserve Chairman Jerome Powell told a press conference after the meeting “The committee is committed to taking the necessary steps to restore price stability. The U.S. economy is very strong and well positioned to manage a tighter monetary policy.”
Will a rise in interest rates affect you? This increase is likely to have an impact on consumers when it comes to car loans, but it remains to be seen how much of this change is actually felt in the car market. If you’re already paying high interest due to your situation, you might not feel the pinch as much as others. And, the impact may take a little while to be felt.
For car buyers, that means being diligent about finding the best deals. Make sure you know where your credit stands and what types of interest rates you are likely to qualify for. Remember that tight inventory also leads to higher prices, so you may need to shop around at multiple dealerships to find the best deal for your situation. If you limit your search to a two-week window, called rate shopping, all of the applications you make for the same type of loan only count against your credit score once, instead of having multiple applications for credit in your reports over time.
As the Fed’s interest rate increases begin to impact the market, we’ll know more about the direct impact on car buyers, and we’ll keep you posted on the impact. that rising federal interest rates could have on you. Look for the latest updates and issues here when they become available.