The Federal Reserve is a very complex and intricate facet of the American economy. If the Fed Raises short-term interest, you can generally expect to be paying more for your short-term loans because the Fed sets the benchmark.
As they discussed in the May meeting of the Federal Open Market Committee (FOMC) interest rates are expected to increase by .75-1%. They are doing this in an attempt to combat this outlandish inflation that we have been experiencing since and through the pandemic.
When the exchange rate by which one bank lends to another is changed (The FED) It's a pretty safe bet you and I (The consumer) are going to be getting rate hikes from lenders. What does that mean to you and your Purchase of an automobile?
Multiple things may affect the interest rate you pay on the purchase of a new or used automobile. The time of year, your credit score, the type of vehicle, the age of the vehicle, how many miles are on the vehicle, and you better believe THE FED!
For instance, if you were to buy a vehicle at today's average price ($47000) and finance at the average interest rate (4.07% according to Experian's Auto market finance report 2022) at 72 months you're looking at $802 per month. 1% in interest increase (As the fed is about to do) will raise that payment by about $25 per month and your overall cost for that extra point in interest will be about $1730. Now, keep in mind, that this is only the case if the bank charges the US the same interest rate increase the fed set. (Not likely)
Another thing to keep in mind is WE DON'T KNOW what the fed will do next! We don't know, but we do have history to look at. With inflation as far off the charts as it has been the Fed is already poised to make the most drastic changes in three decades.
We Have seen the fed set the rate at 20% in the past to battle double-digit inflation. We've also watched it increase as much as 4% in as little as five months.
So, What's next? I'm not sure. But, what is likely next VS what's now for the purchase of an automobile tells me that the worst time to buy a car is coming soon.
