By Sabrina Karl

When the Federal Reserve increases interest rates, one of the most direct impacts is short-term consumer debt getting more expensive. That means the rate Americans pay on auto loans and credit cards goes up.

To fight white-hot inflation not seen in this country in decades, the Fed is currently on a dramatic rate-increasing path. After dropping the federal funds rate to zero at the outset of the pandemic and keeping it there the rest of 2020 and all of 2021, the Fed has this year implemented six rate hikes, including four consecutive increases by a large 0.75% increment.

So where does that leave auto loan rates? The Federal Reserve has been tracking national rates for 60-month new vehicle loans since 2006, when they averaged in the high 7% range. Today’s rates are not historical highs by that measure. But the most recent data show an average at its highest level in more than a decade.

From mid 2012 until the end of 2018, the 60-month new vehicle rate has averaged in the 4% range, dipping as low as 4.05% one quarter each in 2015 and 2016.

Leading up to the pandemic, the average climbed to 5.37%, but then dropped back down to 4.80% by the end of 2020. It then bobbed around in that high 4% to low 5% range for more than a year.

When 2022 started, the average hit a decade low of 4.52% in the first quarter. But with this year’s numerous rate hikes, which began in March, the average has been marching higher.

The Fed’s latest reading (2022 Q3) shows an average rate that has shot up to 5.50%. That’s its most expensive level in 11 years.

The Fed anticipates making multiple additional rate hikes into 2023, with the next announcement coming on Dec. 14.