Fed Hikes Adding to Highest U.S. Car-Loan Rates in Eight Years

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(Bloomberg) -- It’s getting more costly for most Americans to buy a new car or truck. Not only are vehicles getting more expensive, but so is the money needed to finance one.

The average interest rate for new vehicle loans rose to 5.2 percent in February, the highest in eight years, according to car-shopping website Edmunds. During an era of rock-bottom benchmark borrowing rates set by the Federal Reserve, car-loan rates fell as low as 3.9 percent in December 2012.

The Fed began raising rates about two years ago and had been expected to increase them again three times in 2018. New Fed Chairman Jerome Powell, who made his first appearance before Congress on Tuesday, appeared to suggest that four hikes may be needed this year, but on Thursday, he stressed that the economy isn’t currently overheating.

Rising interest rates come at a time when demand for new vehicles is already cooling in the U.S. Analysts anticipate U.S. light-vehicle sales will slide again this year amid higher used-vehicle supply and rising new-car prices. Even as the average new-car loan term has extended to more than 69 months, the monthly payment surged in February to $527 from $462 five years earlier, according to Edmunds.

“Car shoppers tend to have tunnel vision when it comes to their monthly payments,” said Jessica Caldwell, Edmunds executive director of industry analysis. “We’re starting to see a trickle-down effect from the rate increases happening at the federal level.”

©2018 Bloomberg L.P.

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