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The Fed Lowered Interest Rates 25 Basis Points – Auto Loan Rates Will Finally Fall

Key Takeaways

  • On November 7, the US Federal Reserve announced a rate cut of 25 basis points.
  • After the second cut in recent months, auto loan rates are on track to fall slowly but surely.
  • Not all borrowers should consider refinancing just yet.

On November 7, 2024, the Federal Reserve announced a 25 basis point (0.25%) rate cut, marking the second rate reduction since September. For the first time in years, we’re seeing a shift towards lower interest rates, as the Fed responds to economic pressures and consumer demand. While this rate cut alone might not bring immediate relief to most auto loan borrowers, it signals the start of more favorable borrowing conditions ahead. For car shoppers and owners alike, it’s time to consider how these rate changes could impact their auto loans. Here’s what you drivers should know before refinancing.

Who Should Refinance Their Auto Loan Right Now?

If you’ve seen a significant improvement in your credit score since taking out your auto loan, refinancing may make sense even after this modest 0.25% rate cut. With both the September rate cut and November’s rate announcement, the basis rate has now fallen three-quarters of one percent. That’s not a huge drop, but the trend is likely to continue on a downward path as this ‘easing cycle’ continues. 

Who should consider refinancing right now? Borrowers with better credit scores can lock in more favorable loan terms now, but it may be wise to hold off for another month as lenders gradually adjust their offerings in response to the Fed’s rate cuts.

To illustrate, let’s take a borrower with a $25,000 loan at 10% APR over a 60-month term. With the Fed’s recent cuts, lenders are now beginning to lower rates, though perhaps only to 9.25% for a similar borrower profile. Refinancing from 10% to 9.25% APR on a $25,000 loan would save approximately $672 in total interest over five years. While that’s a meaningful savings, it’s not transformative—but every bit helps. However, if your credit score has improved, you likely qualify for a much lower interest rate, and could stand to save much more with a lower rate.

For those who can show significant financial improvement since their original loan, including a higher credit score, lower debt-to-income ratio, or even a small down payment, the time to refinance could be as soon as the end of November. Locking in a lower rate will reduce monthly payments and the overall interest paid across the loan term.

Who Should Wait to Refinance?

is now a good time to refinance a car loan?

If your credit score has only improved slightly (or not at all), it’s worth waiting for additional rate cuts and using the time to strengthen your financial standing. Economists suggest that the Fed may continue to reduce interest rates by up to 2% in total through late 2024 and 2025. These potential future cuts could bring about even better refinancing terms for borrowers with strong credit.

In the meantime, continue focusing on boosting your credit score by paying bills on time, reducing outstanding debt, and maintaining a low credit utilization ratio. When the Fed enacts further cuts, you’ll be in a better position to qualify for more competitive refinancing offers, maximizing your savings.

Additional Rate Cuts Are Likely in December and 2025

refinance now or in 2025?

It’s anticipated that the Federal Reserve will make another rate cut in December, with additional cuts projected throughout 2025. The next Fed meeting will begin on December 17, 2024. This trend suggests auto loan rates will gradually drop over the coming months. Deciding to refinance depends primarily on your current credit health. If your credit score has improved, refinancing now could yield immediate savings at today’s lower rates.

For those whose credit scores haven’t shifted much, waiting for more cuts, while continuing to improve your credit, could lead to even more significant savings. 

In either case, staying informed on rate trends and preparing your finances will ensure you’re ready to act when the best opportunity arises. To explore potential savings, you can calculate how much a lower rate would save using CarEdge’s free auto loan calculators. Whether you’re prepared to refinance today or prefer to wait for the next Fed move, understanding your options will help you make the best financial decision for your car loan.

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Last updated Nov 7, 2024

2 Comments

  1. Karen McDonald

    Any Canada info on site? Thanks

    Reply
    • Justin Fischer

      Unfortunately we haven’t grown to cover Canada yet, hoping to do so soon.

      Reply

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