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Auto Loan Interest Rates to Increase

By Liz Opsitnik
Tuesday, Apr 13 2010 10:54

Economists said over and over again that the record-low auto loan rates wouldn't last forever. The Federal Reserve dropped the fed funds rate to near 0% and has kept it there since December 2008, CNNMoney.com reports.

Now that the economy is improving, it will start to cost you more to take out a car loan. Credit card companies have already doubled and even tripled their interest rates. Auto loan rates are expected to stay low for a little while longer, but will then start to go up.

When the Federal Reserve increases the fed funds rate, banks and lenders will have to increase the interest rates they charge car shoppers, since it will cost the lender more to borrow money to give to you, the consumer, who needs an auto loan to buy a car.

"The important thing to remember the Federal Reserve has a mandate to maximize employment and keep inflation low, so interest rates may be going up, but it will be in the context of better job growth," Zach Pandl, an economist at Nomura Securities, told CNNMoney.com.

CNNMoney.com says that auto loans could be the one borrowing bright spot. Currently, there are more than 20 automotive brands offering one or more 0% auto loan incentives in April. While borrowers need to have stellar credit scores to get approved for the 0% car loan deals, those who do will save potentially thousands of dollars over the length of the auto loan.

When looking at auto loans, experts predict the enticing financing deals will last a while longer. There's more money available for auto loans than the demand for the loans, according to Pandl.

If you know you qualify for 0% financing or a low interest rate, you may want to take advantage of the car loan rates now, before they start to go up and it will cost you more to buy a vehicle.


Confused or unsure about some of the car loan terms used in the article? Click here for our Auto Loan Glossary.



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