Auto loans stay cool and affordable as Federal Reserve interest and debt rates rise

May 18 – ROCHESTER – Buy this car while money is still cheap.

The Federal Reserve raised interest rates over the past month as it continued an aggressive approach to inflation, with the U.S. Bureau of Labor and Statistics reporting increases in the consumer price index of 8 .5% in March and 8.8% in April.

As credit card debt, mortgage rates and rental prices continue to rise; car loans and appliance prices are still affordable for low-income and middle-class households. And with the consumer price index rapidly rising – the biggest jump since 1981 – household budgets are becoming tight due to a combination of inflation and rising interest rates.

However, auto loan rates, for now, are still relatively low.

“Auto loans aren’t going up as fast as mortgage rates are going up right now,” said Jacelly Cespedes, assistant professor of economics at the University of Minnesota’s Carlson School of Management. “Car loan rates just haven’t caught up to other rates yet, but they could in the next six months.

Usually, Cespedes said, when the Federal Reserve raises interest rates, it impacts interest rates on all loan products.

With auto loan rates remaining, auto dealerships are seeing many customers coming through their doors who are now looking to take advantage of these cost-cutting offers. Jake Fratzke, chief financial officer of Penz Automotive Group in Rochester, said a large number of customers were trying to get ahead of rising interest rates.

“What I’m seeing right now is almost every customer trying to get ahead of the rate hike,” Fratzke said. “It hasn’t slowed down business in any way. As customers know the Federal Reserve is raising rates, they’re trying to beat that curve and get the vehicle they’ve been talking about for a few months or last year.”

Even as customers struggle to get ahead of rising auto loan rates, there’s still a shortage of microchips among automakers, delaying the manufacturing and delivery of new vehicles they order, Fratzke said.

Whenever customers commit to buying a new vehicle, Fratzke explains that it could take six to nine months to manufacture and deliver the vehicle. It is possible that their loans for the purchase will increase if the Federal Reserve raises interest rates again within this time frame.

“As we get closer to the end of 2022, that’s where you’re going to see your spike in those interest rates. It’s just a question of what those rates will do by the end of the year. year as they continue to rise now,” Fratzke said. “I hate to say it but the rate hike won’t really impact car sales at higher rates, again it will probably push more sales as rates go up consumers will try to get out of those higher rates as much as possible.”

In addition to considering car purchases while prices remain cool. Cespedes advised many households to focus on their budget for the year as she doesn’t see inflation abating any time soon.

“Overall, I think households need to review their budget and try to offset the negative effects of inflation. A first step is to look at their budget and try to find substitutes, or replacements, for what they need. and that they don’t need and start negotiating some bills,” Cespedes said.