Average new and used car loan rates move in opposite directions in May

New data from Edmunds shows that average new car loan rates nationwide rose last month while used car rates declined slightly. 

Why it matters: The Federal Reserve's attempts to curb inflation haven't been as effective as hoped. Interest rates are at multi-decade highs, and while inflation slowed in April to 3.4%, consumer spending was weaker than anticipated.

Of note: May’s Consumer Price Index, a key indicator of inflation, will be released later this month. 

By the numbers:

• Average new car loan rates ended May at 7.3%, a 0.1% increase from April but below the high of 7.6% in October 2023. New vehicle loan rates have steadily risen since the start of the year. 

• Used car loan rates fell 0.1% from April to May and are now at 11.5%, the lowest level since January 2024.

• In the lower 48, Georgia had the highest new car rate at 8.43%. New Mexico, Alabama, and Kentucky also exceeded 8% APR.

• Mississippi had the highest used car rate at 13.58%, followed closely by Georgia (13.26%), Alabama (13.12%) and Louisiana (12.98%).

Bottom line: The overall cost of owning a car is climbing steadily, squeezing household budgets. 

• The average buyer will now pay an additional $4,250 in interest over the life of their loan compared to 2021, according to Edmunds. 

• With interest rates hardly budging, car loan payments could continue to strain car buyer wallets for the foreseeable future, despite prices dropping. 

What we’re watching: The Federal Reserve is meeting this week to discuss the path forward for interest rates. The Fed likely won’t move interest rates this week, as the economy has shown solid growth. All eyes will be on Chairman Jerome Powell as he sheds light on the outlook on interest rates for the rest of the year.

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