New vehicle financing rates set to decline in 2021
Despite rising prices for new cars, SUVs and especially pickup trucks, experts predict that low interest rates should continue to work in favor of buyers and renters throughout the year. This is good news not only for those intending to buy or lease a vehicle, but it should help automakers and dealerships move the metal in the wake of the drop in sales caused by the latest increase in coronavirus cases.
According to BankRate.com According to Chief Financial Analyst Greg McBride, CFA, the national average of a five-year loan for a new vehicle is expected to drop to 4.08% in the coming months, with four-year financing expected to average at 4. 75%. In contrast, auto loan rates were 4.60% last January for five-year terms and 5.33% for five-year financing. They then fell to 4.22% and 4.88%, respectively, at the end of the year.
With a typical new vehicle now costing around $ 39,000, the expected rate cuts would mean that a consumer could expect a monthly payment of $ 627 on a five-year loan with $ 5,000 down and $ 779 with a term of four years.
“The environment of low interest rates and economic recovery will lead to an easing of conditions, especially rates, as competition intensifies,” McBride said. “We will see new and used car loan rates drop throughout the year, but at a snail’s pace. “
Lower finance costs and consistently high residual values will also likely help keep new vehicle leases affordable. Indeed, the monthly payments are based on the difference between the price of the transaction and its estimated value at the end of the term, financed at the rates in force. It would also make it easier for auto manufacturers’ finance subsidiaries to offer low- or zero-interest loans on certain models, as needed, to boost sales.
If Bankrate’s forecast is in fact on the money, that would mean five-year auto financing would be the cheapest since early 2015, with four-year rates being the lowest since 2014. That’s when that the Federal Reserve has started to raise interest rates. since the start of the Great Recession. As it stands, the Fed has already signaled to keep borrowing rates at zero percent until 2023 at the earliest to keep the U.S. economy in positive territory following the punitive effects of the pandemic. COVID-19.
To that, we suggest anyone buying a new or used car, truck or SUV in the next few months to compare rates between local lenders before heading to a showroom and seeing how. they compare to what the dealership may have to offer. Check with the automaker’s websites to see if there are any special finance or lease offers available for the vehicle of your choice; such offers sometimes extend to new cars of a brand’s recent model year.
But keep in mind that the lowest rates are reserved for those with a clean credit rating. Those whose borrowing history is marked by late payments or defaults will be asked to pay more. In some cases much more.
According to a recent State of the automotive finance market compiled by finance experts at Experiential, a new vehicle buyer with a FICO “super prime” score of 720 or higher was able to obtain an average finance rate of 3.65% last year, while a person suffering from a “subprime” score of 580 to 619 was billed an average of 11.92%. Those with the worst credit scores of 579 or less were forced to pay an average of 14.39% for a car loan.