Jennifer Moore
Are you thinking about buying a car? With car sales expected to increase by 1 to 2% in 2025, you won’t be alone if you do. But the thing to remember is that car loan rates play a big role in how affordable a new or used vehicle can be. For borrowers, even a slight change in interest rates can affect monthly payments and the overall cost of a loan.
With car buyers looking to save where they can, understanding rate trends is more important than ever. So, what can we expect in 2025? Will rates climb higher, or could they finally start to drop? Let’s take a closer look at what may be ahead.
What Influences Car Loan Rates?
Interest rates for both new and used vehicles have steadily risen since the pandemic began in 2020, leaving many borrowers facing higher costs. However, change may be on the horizon. The Federal Reserve is expected to implement a rate cut in December, with additional reductions projected throughout 2025.
The next Fed meeting, set for December 17, 2024, could mark the start of this downward trend, suggesting auto loan rates may gradually decrease in the coming months.
Several factors influence car loan rates:
- Federal Reserve interest rate policies that set the foundation for borrowing costs.
- Economic conditions, such as inflation and unemployment rates.
- Trends in the automotive market, including supply chain disruptions and vehicle demand.
- Borrower-specific factors like credit score, income stability, and loan history.
Current Trends in Car Loan Rates in 2024
Throughout 2024, car loan interest rates remained higher than previous years, largely influenced by Federal Reserve policies aimed at controlling inflation and stabilizing the economy. While rates for new car loans peaked at 17.36% in 1981 and dropped to a historic low of 4.00% in 2015, they’ve since climbed. As of May 2024, auto loan rates for 48-month terms averaged 8.65%, reflecting ongoing economic uncertainty and shifts in vehicle demand.
Key drivers behind these trends include inflationary pressures, lingering supply chain issues, and consumer demand for both new and used cars. These patterns provide a foundation for understanding what might come next. With the Fed signaling potential rate cuts for late 2024 and into 2025, borrowers could see gradual relief in auto loan rates.
Expert Predictions on Car Loan Rates in 2025
As we look ahead to 2025, industry and economic forecasts suggest shifts in both interest rates and automotive market trends. Many experts anticipate that the Federal Reserve will gradually lower interest rates throughout the year in response to easing inflation. This could lead to more favorable borrowing conditions for car buyers.
Inflation trends are expected to stabilize, giving lenders more confidence to offer competitive rates. Additionally, car prices and market demand show signs of a modest rebound. Edmunds experts predict 16.2 million new vehicle sales in 2025, a 1.4% increase over 2024 and the highest total since 2019.
Jessica Caldwell, Edmunds’ head of insights, noted, “Consumers feeling energized about the incoming administration may be motivated to make a purchase, while those uncertain about the new leadership’s stance on policies might choose to hold off.”
What Borrowers Should Be Doing Now
So, if you are a potential car buyer or a current borrower thinking of refinancing your vehicle, what should you be doing?
- Monitor the market: Stay informed about interest rate trends and economic updates. While President-elect Donald Trump has promised to lower interest rates, bond markets ultimately influence rates by weighing long-term risks like inflation, economic growth, and U.S. debt repayment.
- Work on improving your credit: Pay bills on time, reduce outstanding debt, and avoid opening new credit lines to qualify for better rates.
- Explore refinancing options: If rates start to drop in 2025, refinancing could help lower your monthly payments or loan costs.
- Evaluate your timing: If you’re considering buying a car, understanding both market conditions and your financial situation can help you make a more informed decision.
Preparing for 2025: Making Smart Moves with Car Loan Rates
As 2025 approaches, car loan rates are expected to shift alongside economic trends and Federal Reserve decisions. Whether you’re planning to buy a car or refinance your auto loan, staying informed will help you make a smart choice.
Focus on ways to improve your credit score to qualify for better terms, and keep an eye on market changes for opportunities to save. By understanding these factors, you’ll be well-prepared to manage your car loan rates in the months ahead.
Ready to take the next step? Visit RateWorks today to explore your options and get a free quote!
