When Will Auto Loan Rates Go Down?

Auto Loan Rates Aren't Expected to Go Down This Year

Going into 2025, new auto loan interest rates were a full percentage point lower than their peak in early 2024, and used car loan rates decreased by half a percentage point. This is largely due to the Federal Reserve's decision to slash its federal funds rate three times in the final months of 2024.

However, the federal funds rate is just one factor that influences auto lenders' decisions about interest rates. In January 2025, the 10-year Treasury bond yield—an important benchmark for interest rate trends in the economy—rose beyond its 2024 high due to economic uncertainty, leading to higher auto loan rates.

While the Treasury yield has dipped since then, it's on another upward trajectory following a report of hotter-than-expected inflation for the first month of the year. This news, coupled with the uncertainty created by the Trump administration's tariff policies, has experts less optimistic about further rate cuts in 2025.

Current Interest Rate Forecast

According to CME FedWatch, which tracks the probabilities of Fed rate changes, there's a 40% chance that interest rates will remain the same at the end of the year, as of February 12, 2025. What's more, there's a roughly 31% chance they'll increase slightly.

If the Treasury yield also remains high, it's unlikely that auto loan interest rates will drop anytime soon. Keep in mind, though, that these predictions are based on current economic data and trends and may change as new information comes in.

Car Prices Are Rising

Interest rates are just one of many factors to consider when deciding whether or not to buy a car. Another potential concern is the rising cost of both new and used vehicles.

New and used vehicles are less expensive now than at their peaks in 2023 and 2022, respectively. However, they've been trending upward in recent months, according to the Federal Reserve Bank of St. Louis.

According to Experian data, the average car payment was $737 for a new car loan and $520 for a used car loan as of Q3 2024. If you're thinking about buying a car, using a car payment calculator can help you get a sense of how much you can afford to spend on an auto loan.

Should You Buy a Car in 2025?

The decision to buy a car depends on several factors, including vehicle prices and interest rates. Some of the other things to keep in mind include:

• Transportation needs: If there are no major problems with your current vehicle, you may have the flexibility to wait until interest rates go down. That said, if your car is unreliable or requires excessive repairs, it may make more sense to buy a new one.
• Budget: Even with relatively high interest rates and car prices, it could make sense to buy a car if the decision results in a more affordable payment. However, if buying increases your total expenses, it may be better to hold off on the decision.
• Savings: A larger down payment can help mitigate the impact of high interest rates and vehicle prices. Just make sure you don't drain your savings account. Otherwise, you may not have enough cash to weather potential financial emergencies.
• Credit score: The best interest rates are reserved for borrowers with good or excellent credit. Get free access to your Experian credit report and FICO^® Score^☉ to evaluate your creditworthiness. If your score needs some work, take steps to improve your credit before you apply for an auto loan.

Take your time to evaluate these and other factors that are important to you to determine the right time to buy a car.

The Bottom Line

The economy showed positive signs last year, leading the Federal Reserve to start cutting its federal funds rate. However, worsening inflation and the economic policies of the current administration have led experts to take a more conservative stance about further rate cuts in 2025.

As a result, it's unlikely that auto loan interest rates will go down anytime soon. If they do, it likely won't move the needle much for car buyers unless economic conditions improve.

Before you decide to buy a car, take some time to consider interest rates, car prices, your credit score and other factors to determine if the timing is right. Also, be sure to practice good credit habits to build and maintain a good credit score and continue to monitor your credit to track your progress.