Interest Rates on Auto Loans Highest in Eight Years

The average annual percentage rate on new financed vehicles was 5.2 percent last month, according to analysts at Edmunds.

Interest rates on new vehicle loans were expected to hit an eight-year high in February, according to analysts at Edmunds.

The annual percentage rate, or APR, on new financed vehicles averaged 5.2 percent in February, compared to 4.9 percent in 2017 and 4.4 percent five years ago, the car shopping and information platform said in a recent news release.

An anticipated decline in the number of loans in the 2-to-3 percent APR bracket and an expected increase in loans in the 4-to-7 percent range were cited as factors underlying the rise in the average, according to Edmunds.

Because the shift is happening in the mid-range of APRs, car buyers who qualify can still find deals, and the market isn't facing a flood of subprime buyers, Edmunds said.

The percentage of loans with interest rates between 0 and 2 percent is expected to remain steady at 22 percent in February, compared to 21 percent in February 2017. 

On the other end, the number of loans with interest rates above 7 percent was also expected to remain steady at 19 percent in February, compared to 18 percent in February 2017.

"We're starting to see a trickle-down effect from the rate increases happening at the federal level," said Jessica Caldwell, Edmunds executive director of industry analysis. 

"The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and as a result we're seeing loans that were formerly between 2 and 3 percent being pushed up into higher APR brackets," she noted.