Auto Loan Rates Keep Climbing as Fed Holds at 3.75%-4% Range

A pause that brings car buyers no relief

The Federal Reserve left its benchmark rate unchanged on Oct. 28, keeping the federal funds target at 3.75% to 4%1. Car shoppers should not read the pause as good news. The vote was 10-2. Governor Lisa Cook and Cleveland Fed President Beth Hammack both dissented because they wanted another quarter-point hike2. September's increase was the Fed's first since July 20232. After this week's decision, traders using the CME FedWatch tool put the chance of a December hike at about 82.6%2.

The coverage of the meeting reached the same conclusion from several directions: this was a delay, not a turn toward easier policy. One Glenmede strategist described the split as an argument over when to tighten, not whether to8. Indeed Hiring Lab called a December hike a near certainty and asked whether the six-week wait hurts the Fed's credibility9. The statement itself said inflation "remains elevated"1, and the Washington Post reported that price pressures have spread past gasoline into the wider economy6.

For anyone financing a car, the more important figure did not come out of the Fed meeting. It came from the bond market.

Auto loan rates follow Treasuries, not the Fed

The 10-year Treasury yield rose to 5.05% on the day of the decision, up six basis points, while the 2-year yield slipped10. That gap matters because longer-term yields drive auto loan pricing. Carlos Garcia, an economist at Moody's Analytics, told CDG News that auto rates are climbing along with the 10-year yield38. He expects them to stay near current levels or move a bit higher through the end of the year38. Cox Automotive's Dealertrack data put the average new-vehicle loan rate at 10.17% in September and the used-vehicle rate at 14.34%. Both were up more than a quarter point from August38. Garcia said the new-car figure is almost a full point above where it was a year earlier38.

Different rate trackers tell somewhat different stories. Bankrate's weekly survey puts a 60-month new-car loan at 7.06% as of Oct. 28. That is slightly lower than early October's 7.18%, though still above the summer's roughly 6.9% to 7% range33. Automotive News, by contrast, reported that auto loan rates rose in October34. CNBC cited Cox Automotive chief economist Jeremy Robb as saying rates went up "across the board" as bond yields stayed high39. Part of the gap comes from methodology. Bankrate surveys advertised rates, while Dealertrack records actual contracts, which include buyers with weaker credit. The overall direction since summer is clearly upward, even if individual weeks bounce around.

Credit scores make a large difference. U.S. News data show buyers with scores of 781 or higher averaging 4.41% on new cars. Deep-subprime buyers average 16.11% on new cars and 21.62% on used ones31. Automotive News described dealers trying to balance high monthly payments, rate incentives and the chance of a December hike as the year-end sales push begins34.

Payments set records as loan terms stretch

Buyers are making payments fit by stretching loans. Edmunds found that a record 25.5% of financed new-vehicle purchases in the third quarter had terms of 84 months or longer, up from 21.8% a year earlier39. Even so, the average monthly payment hit a record $78739. More than one in five financed new-car buyers now pay $1,000 or more a month39. Average interest paid over the life of a loan reached a record $9,93839.

Cox Automotive's own estimates are higher: about $10,100 in lifetime interest on a typical new-vehicle loan and $10,900 on a used one, up 79% and 96% from 201918. Once financing is included, Cox says the full cost of buying has risen 37% for new vehicles and 43% for used ones since 2019, while sticker prices alone are up about 30%18. Put simply, interest costs are now growing faster than vehicle prices.

New-car prices near a record, incentives still thin

Kelley Blue Book reported an average new-vehicle transaction price of $50,562 in September. That is $52 below the record set in December 202553. Prices were up only 0.7% from a year earlier, slower than the 2% to 4% rise that is normal for September53. The modest increase hides real price pressure. Cox analyst Erin Keating said more buyers are moving to cheaper models, which holds down the industry average even as individual vehicles get more expensive50. Four of the five highest-volume segments rose faster than the overall average. Compact cars, for example, were up 3.2% to $27,97750.

Automakers are not cutting prices much to win buyers. Incentives averaged $3,359 in September, or 6.6% of the transaction price, down from 7.3% a year earlier53. Inventory grew 4.5% to 2.80 million units50. Kelley Blue Book said that even brands with plenty of stock are holding back on discounts, while Toyota, Lexus and Honda are running lean50. Both Kelley Blue Book and NerdWallet point to outgoing 2026 models as the best chance for a deal as 2027 vehicles arrive5058.

The likely explanation is that higher interest rates are doing the work discounts usually do. With incentives limited and loan rates near 10% for the average buyer, more of the affordability burden falls on shoppers. Many are responding by choosing smaller, cheaper cars.

Used-car prices flat, with a shift toward fuel economy

The used market is close to flat. The Manheim Used Vehicle Value Index fell 1.1% in September to 205.9. That left it 0.6% below a year earlier, its first full-month annual decline of 202620. Cox then cut its year-end forecast to a gain of about 0.2%, down from the 2% it projected in July19. A mid-October reading showed a 0.7% rebound to 207.411. Cox's Jonathan Gregory said the rebound came from tighter auction supply, not stronger dealer demand11. Unadjusted wholesale prices still fell 2%16. Gregory said higher rates and weak consumer sentiment have not gone away11.

Prices are moving very differently by vehicle type. Compact cars are up 5.6% year over year, while pickups remain weak11. Cox found that vehicles rated below 15 mpg lost 15% of their value over the period it studied17. With gasoline near $4.50 a gallon21, fuel economy now has a direct effect on resale value. Used buyers also face higher borrowing costs: Dealertrack's 14.34% average used rate38 cancels out much of the savings from buying used.

EVs a year after the tax credit

The federal EV tax credit ended on Sept. 30, 2025. It had offered up to $7,500 on a new EV and up to $4,000 on a used one21. EV market share jumped to 11.4% that September as buyers rushed in, then fell to 5.8% the next month2421. Throughout 2026 it has held between 5% and 6%24. Edmunds' Ivan Drury said the market has slowed sharply but has not collapsed24.

The coverage disagrees on how to describe this. USA Today said EV sales have "plummeted"27. NPR and Marketplace describe a market that has settled at a lower, steady level2422. Both descriptions are accurate. EV share today is roughly where it was before the 2022 expansion of the credit24, which suggests the credit mostly moved purchases earlier rather than permanently adding buyers.

What remains for EV buyers comes mostly from automakers and some states. EV incentives averaged $6,117, or 11% of the transaction price, in September. That is the lowest level of 2026 but still well above the industry's 6.6% average50. Brookings found about 20 states still offering EV rebates in June, though some programs have since closed or run out of money22. Colorado is a notable example: income-qualified residents who trade in a gas car can get up to $9,000 off a new EV22. Hybrids are the clearer growth story, reaching a record 16.3% market share27. More than 300,000 EVs coming off lease should add supply to the used market21.

Insurance: steady, but at a high level

Insurance is the one major ownership cost that has stopped rising, at least for now. Insurify's figures show full-coverage premiums holding at $187 a month through the summer and early fall, with the overall average steady at $14345. Compare.com's numbers are similar, at $185 for full coverage48. Premiums still differ widely by vehicle. Compare.com puts full coverage on a Tesla Model Y at $306 a month, compared with $171 for a Chevrolet Equinox48.

The bottom line

The Fed's pause changes almost nothing for car buyers this year. Longer-term Treasury yields are setting loan rates, a December hike is widely expected, and automakers are keeping discounts small. For the rest of 2026, buyers should expect financing costs to keep rising faster than vehicle prices, which means the loan matters about as much as the car when calculating total cost.