Americans planning to buy a new or used car in 2021 can
expect to see interest rates fall even further than they did in a chaotic 2020.
However, the decline may come gradually. That’s the conclusion of analysts at
Bankrate.com, who have released their 2021 interest rate forecast.
Auto loan rates declined significantly in 2020, as the
COVID-19 pandemic saw millions of Americans lose their jobs. The average
60-month interest rate on a new car loan fell from 4.60 percent to 4.22
percent. Meanwhile, the average 48-month used car loan rate fell from 5.33
percent to 4.88 percent.
In 2021, Bankrate expects the national average 5-year new
car loan rate to sink to 4.08 percent. Rates on 4year used vehicle loans will
fall to an average of 4.75 percent. Projections are based on historical rate
data as well as nationwide surveys of lenders.
Both new and used rates to trend lower
Bankrate chief financial analyst Greg McBride, CFA,
explains, “the backdrop of low interest rates and a recovering economy will
bring about an easing of terms, especially rates, as competition heats up.”
Auto loan rates tend to move closely with Federal Reserve lending rates. The
Fed has signaled its intent to keep borrowing costs pinned at zero throughout
the year as it attempts to spur recovery. “We’ll see rates for both new and
used car loans trending lower throughout the year, but at a snail’s pace,”
McBride says.
If the predictions hold, they’ll represent the best
borrowing conditions in years. A 4.08 percent rate on 60-month new car loans
hasn’t been seen since early 2015, “right before the Fed started hiking
interest rates for the first time since the global financial crisis,” the
forecast notes. “Four-year used car loans, which tend to track higher than
six-year loans given their faster maturity, haven’t held at levels comparable
to 4.75 percent since 2014.”
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