Increasing yields on Treasury securities are expected to drive up consumer borrowing costs, particularly for automobile financing, according to industry experts. The yield on 30-year Treasury bonds reached 5.446% this week, a level not observed since 2004, while 10-year Treasury yields hit 5.15%, last seen in 2006. The Federal Reserve’s policy committee recently raised its federal funds rate by a quarter-point to a target range of 3.75% to 4.0%, contributing to the broader increase in borrowing costs across the economy.
Auto loan interest rates typically move in tandem with Treasury yields, particularly the five-year and 10-year benchmarks. Patrick Manzi, chief economist for the National Automobile Dealers Association, indicated that the recent surge in bond yields would likely translate into higher auto loan rates in the coming period. This trend has already begun, with financing costs for new vehicles rising approximately 20 basis points over the past two months, while rates for used vehicles increased about 10 basis points during the same timeframe, according to data from Cox Automotive.
Current auto financing data shows that the average interest rate on new-car loans was 6.35% in the second quarter, with an average loan term of 5.8 years. Used-car loans carried an average rate of approximately 11.2%, with an average term of nearly 5.7 years. The average amount financed for a new vehicle was $43,610 with a typical monthly payment of $765, while used-car buyers financed an average of $27,852 with monthly payments around $542.
Lenders evaluate multiple factors when determining auto loan rates, including credit scores, credit history, loan term, and whether the vehicle is new or used. Even modest changes in interest rates can significantly impact total borrowing costs—a one-percentage-point increase on a $43,000 loan could raise monthly payments by roughly $20 and add thousands in total interest paid over the loan’s duration. Consumers looking to secure favorable rates are advised to improve their credit profiles and compare offers from multiple lenders.
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