Climbing interest rates could translate into higher car loan payments. But automakers including General Motors are considering subsidizing loans to make car payments more affordable for potential buyers.
When discussing fourth quarter and full-year 2017 results, GM’s CFO Chuck Stevens told reporters that auto finance companies generally try and make up for rising interest rates with subsidies.
GM expects interest rates to increase by 0.75 percent this year, as the Federal Reserve continues to move to combat inflation and make sure it has the proper ammunition to act next time the economy slows, the Boston Globe reported.
Economists expect three or more rate hikes in 2018 as it continues to pull back the economic stimulus implemented to pull the U.S. economy out of the Great Recession. The Federal Reserve hiked rates three times in 2017.
In mid-February, Wells Fargo was advertising new car loans with 3.88 percent interest, whereas Bank of America was advertising 2.99 percent.
Many automakers offer their own financing at lower rates. Zero percent financing deals available in February included the Chevrolet Silverado and the 2018 Buick Envision, according to U.S. News and World Report.
As for what buyers of GM cars can expect, the company’s website states, “one-third of people who seek automotive financing have some blemish in their credit records…. our company is committed to offering a second chance to consumers who have had financial difficulties.”
However, low interest rate loans are typically only available to consumers with high credit scores. Knowing your credit score is usually the first step to knowing what interest rate to expect.
While automakers might move to subsidize loans this year, auto sales are expected to dip.
Edmunds forecasts U.S. sales will reach 16.8 million vehicles in 2018. In 2017, 17.2 million vehicles were sold stateside, according to Statista.
The number of cars sold in 2017 declined compared to the previous year for the first time since 2009. From 2009 through 2016, car sales increased as consumers’ faith in the health of the economy improved while they moved to capitalize on lower interest rates.
With auto sales expected to show a modest retreat in 2018, the competition is on for automakers to attract buyers to their nameplate vehicles.