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How the Fed's rate hike could impact your next car purchase

Fed signals up to 6 additional increases
Federal Reserve rate increase could impact car industry
Posted at 4:29 PM, Mar 23, 2022

DENVER — Coloradans are already feeling the squeeze of higher prices at the gas pumps and grocery stores. Now, the car industry could be impacted, making it more expensive for people to buy a car.

“The basic economics is that the higher interest rate will make the automotive finance higher, more expensive for the consumer,” said Tim Jackson, president and CEO of the Colorado Automobile Dealers Association.

Last week, the Federal Reserve raised its benchmark interest rate a quarter-point with the goal of pulling on the reins of inflation.

For the new car market, Jackson says the price difference shouldn’t be dramatic.

“We've heard anywhere from $1 to $3 a month, that really depends on the price of the car,” said Jackson.

Because of the high demand for new cars but little inventory, it could take months for an interest rate hike to catch up.

“It is going to take a while for any interest rate increase to really level out the other problem so they may meet in the middle,” said Jackson.

Although a small increase in rates might not have a big impact on a buyer's monthly payment, some used car lots are having problems just getting people on the lot.

General manager of Michael Auto Sales, Brook Senbeta, says the true impact of the rate increase will be on people strapped for cash who don’t have enough for a down payment to lessen the overall cost of the loan.

“The rate increase challenges the low income, the low credit score section of the population that moves them toward a subprime lender,” said Senbeta.

With subprime lenders, people could end up paying up to 21% interest to finance a car.

“I understand the fed trying to keep from people buying things but when it comes to a car, you know, it's essentially your day-to-day need to get to work,” said Senbeta.

The Fed has signaled up to six additional increases this year. Until then, the higher prices being felt now could have a greater effect than the first rate increase.