Report: Interest rates on car loans will drop further in 2021

Americans planning to buy a new or used car in 2021 can expect to see interest rates drop even more than they did in a chaotic 2020. However, the decline could be gradual. This is the conclusion of analysts at Bankrate.com, who have published their interest rate forecasts for 2021.

Auto loan rates have come down significantly in 2020 as the COVID-19 pandemic has seen millions of Americans lose their jobs. The average 60-month interest rate on a new car loan fell from 4.60% to 4.22%. Meanwhile, the average 48-month used car loan rate fell from 5.33% to 4.88%.

In 2021, Bankrate expects the national average 5-year new car loan rate to fall to 4.08%. Rates on 4-year used vehicle loans will drop to an average of 4.75%. The projections are based on historical rate data as well as national surveys of lenders.

New and used rates will tend to fall

Bankrate’s chief financial analyst, Greg McBride, CFA, explains that “the low interest rate environment and the recovery of the economy will lead to an easing of conditions, particularly rates, as competition increases. intensifies”. Auto loan rates tend to approximate Federal Reserve loan rates. The Fed has signaled its intention to keep borrowing costs at zero throughout the year as it attempts to spur the recovery. “We’ll see new and used auto loan rates come down throughout the year, but at a snail’s pace,” McBride says.

If the predictions hold, they will represent the best borrowing terms in years. A 4.08% rate on new 60-month auto loans hasn’t been seen since early 2015, “just before the Fed began raising interest rates for the first time since the global financial crisis.” , notes the forecast. “Four-year used car loans, which tend to be higher than six-year loans due to their faster maturity, have not held at comparable levels at 4.75% since 2014.”

Pre-qualifying for financing is a critical step in making the car buying process smoother and potentially saving money in interest charges. Here are some more insider tips for buying a new car.