What You Can Do
Here are a few ways to manage rising auto loan rates.
If you have a high credit score:
1. Consider leasing: Interest rate hikes do affect leasing, but since the total lease amount is a fraction of a new car's sale price, you will still pay less every month. Edmunds'leasing advice remains the same regardless of interest rates: Look for lease specials, keep the down payment low, and be mindful of the mileage limits.
2. Find a car that has a low APR offer: While there are far fewer 0% interest offers than in the past, it doesn't mean they've dried up completely. Plus, there are still a number of low APR deals for 1.9% or 2.9%. If you're willing to keep an open mind about brands and models as well as consider cars that you might not be familiar with, you can still get a great financing deal.
That said, it's important to keep in mind that models with heavyincentives have them for a reason: They're not selling that well. Choosing a car with a hefty incentive may make sense now, but keep in mind that when you want to sell or trade in, the vehicle's resale value may reflect its lack of popularity.
If you have a low credit score:
1. Consider buying a used car: The average used-car interest rate is higher than the new-car rate, but since a used car is generally less expensive than a new one, you're more likely to get financed and have a lower monthly payment than if you bought new. Just be mindful of the length of the car loan: An 84-month loan on a used car means you could have a very out-of-date vehicle on your hands by the time you pay it off.
2. Get preapprovals from other lenders: This advice applies to those with either a high or low credit score. Take the time to get preapproved by other lenders before you head to the dealership. It will give you a better idea of what the total loan amount will be and also give you a basis to compare the interest rates that the dealership's lenders may offer.
3. Fix up your car while you fix up your credit: In some cases, the best thing to do may be to maintain your current vehicle while you work on your finances. If you can keep your vehicle running for another year or so, it will allow you to save more for a bigger down payment, which will whittle down the amount you need to finance. You also can use the time to work on improving your credit. Run a copy of your credit report to see which items need attention. In general, you'll want to pay off debt with the highest finance charges first.
Buy Now or Wait for the Rates to Drop?
The experts forecast some stability for the coming year, so things won't get dramatically worse. If you were hoping for rates to drop, it could take another year or so. With this in mind, thebest time to buy a car often depends on the model you want and how long it's been out, rather than the interest rates available at the moment. If you need a car now, use our tips to minimize the impact on your wallet or shop used, where prices should be lower. And if interest rates have improved in a year or two, you can always refinance a loan to bring down your payment and total loan amount.