Car loans play a crucial role in helping people afford vehicles, whether new or used. However, the cost of borrowing money depends significantly on car loan interest rates. These rates are not random; they are influenced by a range of economic factors that directly affect how much a borrower pays over time. Let’s explore how these factors shape car loan interest rates, including used car loan interest rates, and what that means for borrowers.

How Economic Factors Affect Car Loan Interest Rates

Inflation and Its Role
Inflation is one of the biggest drivers of car loan interest rates. When inflation is high, the purchasing power of money decreases. To combat this, central banks, like the Federal Reserve, often raise their benchmark interest rates. This increase trickles down to loans, including car loans. A higher benchmark rate means lenders charge more for car loans and used car loan interest rates to protect their profits.