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3 minutes read Read Published February 01, 2023.

Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the details of taking out loans to buy a car. Written by Chelsea Wing Edited by student loans editor Chelsea has been working at Bankrate since early 2020. She’s dedicated to helping students navigate the high cost of college as well as dissecting the complexity that are associated with student loans. The Bankrate promises

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Therefore, this compensation may affect the way, location and in what order items are displayed within the categories of listing and categories, unless it is prohibited by law. This is the case for our loan products, such as mortgages and home equity and other products for home loans. Other factors, such as our own website rules and whether the product is available in your region or within your own personal credit score may also influence the manner in which products are featured on this site. Although we try to provide an array of offers, Bankrate does not include details about each financial or credit item or service. The Federal Reserve is a complex component of the American economic system. It typically holds eight times a year, the Fed determines how much it costs to borrow money. One of its jobs is to set a benchmark interest rate for short-term consumer lending, which private lenders use to set their own rates. If the Fed increases the federal funds rate at one of its meetings -such as they did at the most recent meeting in Decemberit is possible to be charged more for a personal car loan. How Fed rates impact auto loans The auto loan rates are determined by the time of the year, the type of vehicle, the credit score of the borrower and many other factors. But the Fed decides on the criteria for auto loan lenders . The choices discussed by the participants at Fed meetings are not the rates that consumers can expect to receive but rather affect the cost banks pay to lend to each other. This is why lenders and banks may alter the rates they provide to consumers if they see that the Federal Funds rate changes. If the Fed increases interest rates and auto loan rates can rise as well, or reverse. Feb. 2023 Fed rate change In response to the economic disruptions caused by the pandemic, the central bank seeks to reduce inflation by the introduction of a rate increase. The updated goal of the Federal Funds Rate has been set as 4.5-4.75 percent as of February. 1st 2023. This number does not control the auto rate directly. It is instead tied with the rate of interest. Simplyput, this significant rate increases means that your vehicle financing may be more expensive. However, lenders still have power when it comes to the amount they charge the borrowers based on the driver’s credit background. But Sarah Foster, senior U.S economic reporter at Bankrate says that at present, it’s costly to purchase a vehicle regardless of this rate hike. “The Federal Reserve raising interest rates this year is just one factor that’s likely going cause buying an automobile more costly.” The combined factors of the chip shortage and the pandemic led to sky-high prices for both new and used vehicles through 2021 and into 2022. This rate hike can be beneficial for drivers, Foster says, “If you’re hoping for a glimmer of hope, higher rates could be a positive thing for those thinking about buying a car, especially in the event that it forces demand to balance back out with supply. The easing of the pandemic can increase manufacturing. This means that vehicle prices in 2022 could come down even though the rates are rising.” The reason Fed meetings are important Fed meetings are vital because they permit anyone to have a transparent look into the economic system — more specifically, how interest rates shift and are likely to change. If the Fed announces that it is raising the interest rate, then you could expect to encounter more expensive loans or see a rise on the variable rate loans you have. Check out to see how the FOMC could impact you and your money. How to prepare for future Fed rate changes Preparation is the key to saving money. For the best preparation, educate yourself on the changing rates and how they could affect your budget. In the case of federal funds and automobile loan rates aren’t the same but there’s an effect of dominoes that affects the lenders and can affect your rates. Although the current federal funds rate dictates the amount of auto loan rates however, your credit score is the main factor in determining how much you’ll pay. To receive a loan that has the best conditions, you need a credit score of generally 660 or higher and a solid credit history. The federal funds rate is out of your control, but you can plan for future vehicle financing. The next steps to take when the Fed changes rates, available auto loan rates could alter as well. Even though the Fed’s decision will affect your auto loan however, the rate you’ll pay is determined by your own credit history. Regardless of how the federal funds rate changes, for it to be improved, you must work to improve your credit score and financial situation. It’s also important to stay up-to-date with current loan rates prior to applying for an auto loan. Learn more


The article was written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is an expert in understanding the ways and pitfalls of borrowing money to purchase an automobile. The article is edited by Chelsea Wing Edited by Student loans editor Chelsea is with Bankrate since the beginning of 2020. She’s dedicated to helping students navigate the high costs of college , and breaking down the complexities that are associated with student loans.

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