**Auto Loan Rates to See Modest Relief, But Affordability Challenges Persist**
The recent interest rate cut by the Federal Reserve is expected to have a positive impact on new vehicle sales, but the effects will be gradual and limited. Despite the 50-basis-point rate cut, auto loan rates remain near historic highs, with average rates for new vehicles hovering around 9.61% and used cars reaching nearly 14%.
According to industry experts, the rate cut will take time to trickle down to auto loan rates, which are influenced by longer-term bond yields and loan performances. In fact, the biggest improvement in auto loan rates isn’t expected until early next year.
Meanwhile, consumers continue to face significant affordability challenges, including near-record-high average new vehicle prices and inflated used vehicle prices. The average financing for a new vehicle has risen to over $40,700, with payoff terms stretching to 68.8 months. This translates to a significant increase in monthly payments compared to pre-pandemic levels.
While declining interest rates will provide some relief to consumers, the impact will be modest. Each point decrease in the Fed benchmark rate is estimated to result in a roughly $20 decrease in average monthly payments for new vehicles.
Industry insiders caution that the current rate environment, although improving, will not solve affordability challenges. Auto loan delinquency rates have risen considerably in recent years, and consumers will need to navigate these challenges carefully to avoid financial strain.
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