Fed Rate Hike Set to Push Car Loan Costs Higher

New Federal Reserve Chairman Kevin Warsh raised rates by 0.25 points, and a further hike could follow in October. Warsh acted despite President Donald Trump, who appointed him and warned earlier this month that a rate increase might prompt him to scale back commerce with any country against which the U.S. runs a trade deficit.

The move lands as affordability pressures mount. Average transaction prices ran near $34,000 in early 2015 and stood at about $48,600 by the time Trump was sworn in, then edged past $50,000, a roughly 47% jump across the decade, Kelley Blue Book reports, with more increases expected. "I can't say the sky is falling but the pressures on affordability are not easing up," said Stephanie Brinley, who identified herself as an associate director at Mobility Global.

Before the hike, new-vehicle borrowers already faced a 6.35% APR, well above the 4.1% bottom recorded a decade earlier, while used-vehicle buyers with good credit faced 11.26%. Experian reports the typical new-vehicle buyer now carries $43,920 in financing stretched over an average 60 months, with an average monthly payment of $748. Roughly one in five buyers, 20.3%, hand over more than $1,000 each month, while about a quarter of new-vehicle loans, 23.9%, extend to 96 months or beyond.

Those figures are set to rise. "Auto loan rates tend to track the 10-year Treasury notes and longer-term market rates, and those have been moving higher lately," Cox Automotive chief economist Jeremy Robb wrote in a recent report. Robb warned that the average monthly financing charge could climb by another $6 in the near term, before any increase in the vehicle price itself.

Fuel costs are compounding the squeeze. GasBuddy.com data shows the national average for regular climbed to $4.444 a gallon Thursday morning, up 15.2 cents in a week. Diesel, which moves 76% of American freight, hit $6.3956 after setting a record on September 4. Automakers face their own higher borrowing costs from the hike, adding pressure across an industry that relies heavily on financing.

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