When Will Car Interest Rates Go Down?

Auto financing rates likely won’t decrease in 2026

As of June 2026, the average APR on a loan for a new vehicle is 7%, according to Edmunds. If you buy a used car, you’ll pay more for a loan, at an average of 10.5% APR. Neither rate has changed much over the past six months.

“I don’t think we’ve seen sustained interest rates close to 7% since 2008 or 2009, since the recession,” said Joseph Yoon, consumer insights analyst at Edmunds.

A slow economy can motivate rate cuts, but international conflict is driving current economic activity, and inflation remains high. In May, the personal consumption expenditures index was around double the Fed’s 2% inflation target.

Nearly all members of the Federal Open Market Committee remarked in the June meeting that the current Fed rate should be maintained or increased in 2026.

“In six months, I don’t see any windfall for consumers,” Yoon said. “I think we’ll be lucky if rates don’t go up.”

Vehicle prices might continue to increase this year

The average new car price hit $52,000 at the start of July, according to Automotive News and Catalyst IQ. Steady overall demand, tariffs imposed by the White House and disruptions to global energy markets contribute to price increases. However, the big jump in pricing happened in 2021.

When Covid-19 restrictions ended, vehicle manufacturing hadn’t recovered. To make the most of limited supplies, brands focused on making higher-end trims and luxury models, which tend to have larger profit margins. Federal economic impact payments also helped shoppers afford more expensive vehicles.

“We’ve come to a new pricing floor as to what a new car should cost. As a consumer, that’s where it gets difficult,” Yoon said.

Nearly one in five new auto loan payments are over $1,000 a month, according to Experian. The average monthly new-car payment is $770, and monthly used-car payments average $531. This occurs even as the average auto loan has grown by nearly a full month compared to last year. 

Drivers looking for more cost-effective options commonly seek used vehicles, and increased demand can lead to higher prices on even second-hand cars. 

Should I buy a car now—or wait?

Repairing a current vehicle can be the smarter choice if what you’re paying annually for your current car—repair bills plus any loan payments—costs less than what you would pay for a new one. If ongoing repairs and financing costs more, or ongoing breakdowns make the vehicle unsafe and unreliable, a new vehicle might be in order.

If you need a new car, buying now might save you money, as vehicle prices and interest rates could increase this year. Interest rates might decrease in mid-2027, but projections show that potential cuts will likely be small. Buying now means you lock in your vehicle price. When rates slow, you could refinance. 

However, waiting to buy can make sense if you’re saving for a down payment or working to improve your credit.

Financing for bad credit borrowers is expensive

Your credit score can affect your auto financing more than the Fed rate. 

While the average car loan APR is about 7% for new and 10.5% for used, you’ll pay more for a bad-credit car loan. Experian data from the first quarter of 2026 showed that average rates were nearly double for borrowers with credit scores in the 500s compared to the national average: 13.44% APR for a new vehicle and 19.42% APR for a used vehicle. If your score is under 501, the averages are 16.01% APR for a new car and 21.77% APR for a used car.

“When interest rates are high, even when the car costs the same, the monthly payment feels and looks unpalatable,” Yoon said. 

Rising vehicle prices compound high rates

Taking out a larger loan with a higher APR has a compounding effect on your car’s total cost. A longer repayment term can mean lower monthly payments, but you pay more interest overall. 

Average auto loan repayment terms are getting longer, no matter your credit score, according to Experian. For new cars, only borrowers with credit scores over 780 have an average term less than six years. All borrowers have a term longer than five years for used cars. 

If you paid today’s average new car loan off on time, not early or late, taking the averaged amount financed of $43,925 for six years at 7% APR, you’d pay almost $10,000 in interest. That’s about $1,700 more than the average financing interest charge in 2024.