Will car buyers ever get a break? The answer seems to be yes, just not immediately. Going into the end of the year, loan rates are likely to stay elevated while deals become a little harder to come by. Overall, though, the news looks better for 2026.
Wasn’t there a rate cut yesterday? Yes, there was. And if you’re trying to buy a house, that’s great news. I’ll explain why neither used nor new car rates are going in the same direction. It’ll be a Morning Dump where I get to mention Quantitative Tightening, which is always fun.
The other side of cars being more expensive is, of course, tariffs and EV investments. Stellantis is taking a big hit from changing its plans, but that’s probably just a one-time thing. Volkswagen is in terrible shape with both and is uniquely susceptible to a lack of trade deals, as well as some fun new geopolitical concerns.
China and the United States now have a quasi-deal that’ll have to be renegotiated every year, but will take a lot of pressure off trade. Could 2026 be a calm year? That would be nice.
The Car Loan Fairy May Not Come Until 2026
The good news is that the Federal Reserve Board of Governors approved a Fed Funds Rate of 3.75%-4.00%. This was expected and, to some degree, ‘priced in’ as market watchers like to say, so don’t expect huge market moves today.
This caused 10-year U.S. Treasury bonds to move higher while, at the same time, mortgage rates are going down. As I mentioned above, auto rates are going up. If you bought a new car during the pandemic and got a 0% finance rate that matched a low Fed Funds Rate, you might wonder why the two are so disconnected.
As Cox Automotive Chief Economist Jonathan Smoke explains, there’s more going on than simply bond yields and how much it costs to borrow money:
New rates are moving higher mostly due to fewer special offers from the captive finance arms of the manufacturers. Fewer special, low-rate offers means an increase for prime-and-above borrowers who disproportionately benefit from the special offers.
Inventory is falling as carmakers cut back on EV production, retool, slow imports due to tariffs, and otherwise do whatever they can to not end up with a glut of cars on dealer lots. That lack of cars means there’s less incentive to offer low rates, causing averages to go up.
Ok, but what about used cars? As Smoke points out, the blow-up of lenders like Tricolor has spooked the market, but overall fears about the economy haven’t particularly dissuaded subprime borrowers, who keep financing cars at super high rates.
The good news is that analysts like Cox Automotive see some of this chilling out, eventually:
Average auto loan rates are likely to remain high through November. December will bring more year-end rate offers in the new market, which should help pull the average rate back down. The used market is not likely to see rates decline until loan performance improves, and this is the time of year when loan performance always degrades.
The seasonal pattern suggests that loan performance should begin improving by March, and 2026 could see improvement start sooner as consumers benefit from reduced tax withholdings leading to higher take-home pay in January. Then, starting in February, we should begin to see the impact of record-high tax refunds.
In addition, Fed Chair Jerome Powell said that the policy of Quantitative Tightening is going to end, so that’ll hopefully help take some of the pressure out of rates next year, according to Smoke.
Obviously, if you have a good-sized down payment and a high credit score, you’ll probably be fine.
Stellantis Finally Posts Good Numbers
After a long period of shrinkage, Stellantis posted positive numbers in its Q3 investor update. Specifically, both shipments and net revenues grew by 13%, including growth in shipments of 35% in North America.
How’s the company doing this? It points to a stronger position in North America, including the return of both SRT products and the Hemi V8, which bring with them higher margins.
Looking at the overall picture, it seems like things could be worse (unless you look at Maserati, which is cratering). The company expects about $1.2 billion in tariff hits for 2025. Not great, not terrible.
There is an interesting line in the report that’s worth looking at:
As we continue making important and necessary changes to our strategic and product plans, also in response to regulatory, geopolitical, macro-economic and other external and internal developments, we anticipate incurring charges in H2 2025, which, once finalized, we expect will largely be excluded from AOI.
Stellantis doesn’t go into details, but my guess is some mix of sending more production to the United States and slow-rolling many of its EV plans.
Volkswagen Lost $1.5 Billion Thanks In Part To Tariffs, Worries bout Chip Shortage
Here’s the full release from Volkswagen Group that details how far it has fallen so far this year. None of this is a surprise, as the slowing of EV sales in the United States, troubles in China, and tariffs all combine to cause trouble. This is to say nothing of Porsche, which is a perfect combination of all those issues.
Volkswagen forecasts it’ll make about as much as it made in 2024, with an equally mid margin. Here’s something interesting buried in the report, though:
The forecast is based on the assumption of adequate availability of semiconductors.
This is the issue between the Dutch government and the Chinese government, which has seen semiconductors yet again become an issue for carmakers. Bloomberg has more:
The spiraling standoff between the Netherlands and China over Nexperia, owned by China’s Wingtech Technology Co., comes after the Dutch government seized control of operations in the country. Beijing this month retaliated with an export ban from Nexperia’s facilities in the country, triggering a frantic search for alternatives.
“The solution should be on the political side because its not a technical shortfall or a capacity shortfall,” Antlitz said. “It’s really induced by political discussion, and this is where we hope that all the relevant parties sit together and find solutions.”
It’s always the Dutch Van Houtens that are the problem, amirite?
China Comes To Terms With The United States, Sort Of
The ongoing trade war between the United States and China, which was started because of, uh, fentanyl, looks like it’s about to cool. President Trump and Chinese President Xi Jinping both agreed to a bunch of measures that’ll calm things down. Maybe.
Specifically, the White House will lower tariffs by 10% while China will release rare earth minerals and buy American soybeans.
Per Nikkei Asia:
Xi told Trump that the superpowers “should be partners and friends” because that is what “reality demands.” The talks on the margins of APEC in South Korea, however, appeared to stop short of a fully fledged trade deal, with Trump acknowledging that discussions between the rival powers “will go on for a long time.”
“I put a 20% tariff on China because of the fentanyl coming in,” Trump told reporters aboard Air Force One as he flew out of Busan moments after meeting Xi, referring to a drug-abuse epidemic that has swept the U.S. “Based on his statements today, I reduced it by 10%.”
As the report points out, the effective tariff rate against China is still about 40% even after the drop. So what does this really change? Again. from the Nikkei Asia report:
Some observers were underwhelmed by the initial outcome. “Frankly, the U.S. does not seem to have gotten much,” said Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis.
Markets, which had rallied in recent days on hopes for a positive result, were rocky in the wake of the meeting. China’s benchmark CSI 300 Index ended the day down 0.8%. U.S. stock futures swung between gains and losses.
It doesn’t seem like a lot, but it’s not nothing.
What I’m Listening To While Writing TMD
I keep being in the same city as Wolf Alice and not being able to get away to see a show. I gotta fix this, just to see them perform “Just Two Girls.”
The Big Question
How much do loan rates impact your car buying purchases, new or used?
Top graphic images: Audi; DepositPhotos.com
I have never bought a brand new car debated about it but prices are way to high for deprecating assets but is rates are low enough (near zero) and if rates for used are to high that might push me towards going for a new car for my next car. But that is still a few years down the road I will wait for the R3X or Scouts to come out and be out for at least a year or 2 for all the issues to be ironed out before I start looking for a vehicle. But if rates are just ridiculous to the point a car payment would be that of a mortgage then no and I will either save up or keep driving my hoopties.
Re: Wolf Alice. “Just Two Girls” is good, but I don’t think they are going to top “Bros” or “Smile” for me. Such a fun band that I, too, wish to see live at some point.
At this point in my life, I am not planning on financing anything including cars and houses, so rates don’t really matter. My S6 is paid for, but man did I just get socked with the Audi tax yesterday for the mechanic’s bill. $4k for oxygen sensors (4x) and PCV/thermostat/water pump replacements.
I have been fortunate enough to not need a car loan in many years, so that’s not a factor I consider. If the deal is better to finance, I do it, but then I pay it off as soon as I’m allowed to. I know people say it’s better to finance and invest the money or whatever, but I despise debt and am far more comfortable just paying cash whenever humanly possible.
Unpopular opinion: being debt-free is better than being aN iNvEsToR. People need to be more humble, and stop trying to take everything from everyone else.
Couldn’t agree more. Clearing debts is so much better in every way to me.
Being both is even better.
Interest rates are only one of the factors that I look at prior to pulling the trigger on a new vehicle purchase.
The factors I look at are (in no particular order):
Interest rates
Cash available to cover unexpected expenses (water heater, HVAC, roof, well pump, etc)
Performance of investments
Need versus want
Increase in insurance costs
Alignment with my spouse
I am in the minority of people who have a home that is paid for (20+ years ago) so I don’t have to worry about shoehorning a car payment with a mortgage payment. This is also why I have the option to pay cash most of the time for a vehicle.
Of those factors the most important is being aligned with my spouse. We do decide these things together and she is better at negotiating the deal than I am.
Of course the US “didn’t get much”. Par for the course with this administration.
But… But… the fire he set is a little smaller now…. It’s still burning but look at the parts that are not actively on fire and are just mostly burned. That’s good right? A smaller, still burning fire he will, inevitably, pour gas back on when he want’s another distraction or more likely another round of bribes….
The US didn’t get much.
But the Koreans kissed his ass bigly.
And then gave him the gold King’s crown, so he could enjoy his grifting…
Loan rates are just a part of the cost. If I can afford a certain amount per month, that’s what I can afford, regardless of how much of that is principal. If the car that principal buys after 60 months isn’t more appealing than my current one, that’s a non-starter. I had a fairly terrible rate on my last loan, but there wasn’t much to do about that. I got an older, cheaper car and that was the end of that.
Wasn’t there a rate cut yesterday? Yes, there was. And if you’re trying to buy a house, that’s great news.
Anyone stop to consider why interest rates go down? It’s called lack of confidence in the economy, marked by increased unemployment and uncertainty for the future. Who would want to buy a house under these impending circumstances? And people are cheering the event as ‘a win’?
Market go up because people invested in AI think that lower interest rates will make new data centers cheaper to construct.
this is the answer and also why there has been a huge push for lowered rates. They need to borrow money to fund investments because only an idiot would use their own money to invest when you can use money that you don’t have to pay back when your investment fails. This is all private equity and billionaire economic model. That way they can push any dumb idea and still maintain the economic power to push the next one.
Yes, yes I know. I read the Deutsche Bank report a few weeks back, stating that five AI stocks are what is currently propping up the US market and keeping us from a recession.
Too frothy for my tastes. Seems like the whole US market has become in NVIDIA we trust.
I just bought a house but with a small mortgage due to downsizing. My realtor showed me what she thinks our old house will go for and it’s mind blowing how far prices have gone up. I thought the house was inefficient with its high cathedral ceilings and such but I guess that’s something people will pay a premium for.
>Wasn’t there a rate cut yesterday? Yes, there was. And if you’re trying to buy a house, that’s great news.
Is it? Why would banks make a 30-year bet on return based on an overnight rate?
The reality is they don’t. 10Y treasuries are what mortgage rates are mostly based upon, because it’s better to base returns around the real return of a 10-year instrument than to overnight rates. Overnight rates can be indicative of where treasuries may head, but there are other factors that influence rates more strongly.
Rates are mostly going down as a function of reduced business. Lenders are hungry. You also have growing inventory in 15 states where builders are making new construction cheaper than existing inventory after net incentives, as they are buying down rates and providing discount on completed developments that aren’t moving.
The other demand issue is likely more structural, but won’t comment on at this time.
It doesn’t impact my buying, but may impact whether I finance the purchase or not. If higher rates get too close to my expected return on investments and drives the spread too low I’ll just pay cash to avoid the risk and headache.
Lower or zero rate might move up a purchase date a bit. Took a partial 2.9% loan on current car as my credit score was being lowered for not having had a loan of any type (excludes credit cards) for more than four years. And after 10 months my score is back up in the 800’s. The lesson:credit scoring will punish you for daring to not pay interest to the finance gods.
The issue is that you took on a new loan.
I went from 830 -> 780 from opening a few lines of credit earlier this year. Some 0% cards, and a (compared to the car) tiny auto loan I’m paying off in just 18 months.
I’m about back where I was. Next year I’ll be 830-835. The issue was I opened new lines of credit. My risk profile immediately changed.
You misunderstand: my score was being lowered over the two years before the loan. It did drop a bit the month following taking on the auto loan, but as soon as made the first payment 3 weeks before it was due I bounced right back up from high 700’s to low 800’s, and it has continued to climb slowly. But you do reinforce my point, in that use credit and lower score, don’t use credit and lower score.The gods demand interest, and it better be on time. I would not care all that much except for the fact that credit scores are used to set insurance premiums, for screening employment applicants, etc.
I’ve never had that happen from not opening lines of credit.
There are other, new factors that are being used for credit reports now relative to a few years ago. You may want to go through your reports at the three primary bureaus and take a look at what those new data sets/signals on your report are, as you’ll find they likely had an impact.
A big one is there can be a risk premium component based on your active insurance policies, which has been added to some models.
As someone who monitors my score more closely than I should (I have excellent credit, but free credit monitoring makes it too easy), I can tell you that closing out a loan will temporarily lower your score and that effect could easily be exacerbated if you don’t have a long credit history, since it can lower the average account age.
And not having an installment loan won’t really lower your credit, but having one with a good payment history can raise it, so not having one can hinder credit score growth.
Catch – 22.
In other words, the poor people can continue to expect to suffer disproportionately.
Same as it ever was, Spikedlemon.
Same people hit hardest with trade protectionism.
I’m sure they can lift themselves by their own bootstraps by now.
Not if those straps aren’t attached to boots made in the USA.
Assembled with leather tanned in Brazil, rubber from India, soles from Italy, laces from China, thread from Bangladesh, patterns cut by a machine built in Germany, sewing machines made in Switzerland. We’ve got your tariff (taxes) covered to make sure you cannot afford those boots.
Just a small note – mortgage rates are skyrocketing, up nearly a quarter point in the last two days. That’s a huge move in the opposite direction implied here, and it makes a much bigger difference with houses than cars. 0.25% of a $30k car loan is $75/year in extra interest, for a $500k mortgage it’s $1250.
Yeah, buy the rumor, sell the news. The cut has been priced in for a while. Just like last month.
They will probably continue drifting lower slowly, but as someone in the middle of a move, I’m watching closely.
Yeah, my day-to-day checking account is a simple indicator for me. It earns interest on the first $10,000, and that interest rate went down from around 4% to around 1.5% over the last year, with the biggest drop right around the time everyone was predicting this rate cut. It always drops before rate cuts, then sometimes rises a touch if the cut is less than expected. Luckily, I had thrown some of the money I’d normally keep in there into a CD right before CD rates plummeted (though not so soon that the longer-term CDs were offering good returns–the folks in the know are always on alert for these things).
Answer:
Because we’re all fucked.
Except for the important people like those in the administration and their posse of corrupt friends.
…It hasn’t. I’ve only taken out a loan for a car once, and that was a personal loan for my Sentra SE-R: I paid for my FR-S in full when I got it thanks to waffling about on getting a new car and not having much to spend on.
Rates affect my purchases a lot. I got my GTI at 0% APR and my Kona N is at 2.75%. I don’t think the average person really understands how much of a difference interest rates make over time. A couple percentage points literally equates to four figures worth of spending over the life of the loan…and a really bad rate can easily exceed $10,000 over time or worse.
I get that the average Jane or Joe just sees the monthly payment and goes “I can handle that” but it only tells a small portion of the story. I am absolutely not buying a new car when rates are trash unless I absolutely have to. My wife and I are fortunate in that we both qualify as prime buyers and tend to get the best rates available, but when the best rate is like 5-7%? Get outta here.
I’m cheap. Not so cheap that I go with the beloved “I’ll never have debt ever and only pay cash for beaters” approach that so many online enthusiasts claim to abide by, but I always buy cars that are significantly under budget so I don’t have to worry about setting up autopay. I also always make sure to have enough of a down payment that I can get out of a car without issue if shit hits the fan. I refuse to ever have negative equity and you should too.
I don’t buy into the old school “don’t finance a car you couldn’t pay cash for” trope, but you should put enough down that you have an off ramp in case your situation changes drastically. Also, the unfortunate reality is you’re going to have to take on debt to build wealth. There’s no way around it. If you’re one of those people like Brian from RCR who refuses to ever have debt and is fine with spending the rest of their lives not owning anything then more power to you, but you’re not going to be sitting on a pile of assets when you reach retirement age that way.
I don’t fear debt at all. Debt is a tool and when you have good credit there are ways to minimize the damages or even avoid them altogether. I know lots of people my parents’ age who spent their entire adult lives saving every last penny and abiding by old school financial rules. A lot of them have fat stacks of cash to retire on but have a lot of regrets about not enjoying life more when they were young and able bodied. There’s a middle ground to be found.
I wouldn’t call it a trope since the best way to pay for a car is very situational. My credit score always hovers around 840, and I could afford to buy any car I would really consider with cash. Whether I use cash or take out a loan depends on how well my investments are doing and the interest rate I can get. I still pay a mortgage despite having the ability to pay off the balance because my mortgage interest rate is about 2.5% and my investments do a lot better than that. Plus, there are tax advantages.
Debt is a tool that can build something or destroy it, so people who take on debt better know what they are doing. The issue is that the vast majority of them don’t. They want something, so they buy it. They excuse it as “enjoying life” but are doing so in a way that will make them very much not enjoy life in the future.
You are 100% right that there is a middle-ground, but in the U.S. the current balance isn’t on the side of frugality.
And it’s almost like an entire economy propped up on over leveraged consumerism isn’t sustainable…ah well, maybe we’d understand that if there was some sort of big catastrophic economic event that happened in the last 20 years under similar circumstances….
From my STEM perspective: An ‘economy’ based on consumerism, that is, using the finite resources available on the planet, with an ever growing population, using energy to manipulate them (and dealing with the ensuing biologically hostile pollution) is absolutely not a sustainable practice.
“Cost of Interest” is what I always advise people to look at.
Don’t just look at the rate. Work out how much interest you’ll pay (there’s free tools!), and what that interest is relative to the “out-the-door” price of the car.
For most people, you want “Cost of Interest” to be 10% or less. Many do 15-20%. So if you’re buying $10,000 worth of car, after interest, have it be < $11,000. Lower is better.
I found the best rate in the US earlier this year, but paying off the 60 month note in 18 months. It’s half-paid off after 11 months. Total cost of interest? 0.7%. So for every $10,000 of car I bought, my total price paid at payoff in May 2026 will be $10,070.
EDIT: Why didn’t I pay cash? Because given where I saw the economy going, I wanted to keep another 12 months expenses liquid and inflation-protected after taxes.
People not checking cost of interest is why dealers love to offer a good interest rate or money off the price. They know most people won’t check to see which is actually better, so they can steer people toward the more profitable option.
Yep. I sold them. I’m aware. Though we had fairly sharp clientele. Some folks did some… interesting things, which I questioned, but they had specialized market knowledge and very successfully leveraged it in the end into a nice return. I don’t speculate on cars, but some customers did, and did well.
When I did my purchase earlier this year, I secured the loan myself. Dealer was minimum 150 basis points higher, and most lenders around 200 basis points higher. I also secured my own shipment carrier, and even saw it onto the truck and signed the bill of lading myself.
Salesman kind of knew who I was. “Yeah, this isn’t your first rodeo.”
The cost of interest on my mortgage was 115.61% – as in more than doubling the value of the loan. 30 years is a looong time.
I have been overpaying a bit (as it has a large impact when it is done early in the loan) and am down to 98.93% now. Yes, I have spreadsheets.
Yes, banks love 30-year mortgages for that very reason.
Compounding isn’t something you want to interrupt when it’s working for you, but boy do you want to disrupt it when it’s working against you.
You also have to “love” when banks will also try to apply extra payments only to the interest by default, and you specifically must specify that it apply to the principal. More notes are doing that now.
Though 30-year notes, if you will pay them down aggressively, offer a good hedge against future cash flow disruption. Having a lower scheduled payment provides much more breathing room if your income disappears for an extended duration. Moreover, if in normal times you choose to simply burn down the principal, the “cost of interest” over a shorter schedule is greatly reduced in exchange for flexibility tradeoff.
This is actually one of the reasons I finance certain things, even when I technically have the cash to pay upfront. I like to maintain a certain amount of liquidity, and I tend to purposely run with a pessimistic budget. Because sometimes shit hits the fan, or at least things don’t work out the way you want them to.
The last car loan I got was 4 years on a used van. I had no intention of still owing a significant amount of money on a van that would be 7 years old by the end of the loan, but I wanted the flexibility. I put extra towards the principal, and when I had enough cash on hand, I killed the loan after 2 years and 8 months. Overall, the cost to finance wasn’t all that much.
Same – when I got my mortgage, it was $1K-1.5K below what I thought I could manage – but after my first escrow analysis, that shrunk to a $500 cushion… I had been forewarned by my lender but I was still ill-prepared for the size of the jump in payment.
Every person I talk to that’s a first time homebuyer, I warn them that the estimates they see for property taxes are at best, fudged and at worst, manipulated to make them not seem so bad. Example, agents posting estimated taxes based of what the elderly veteran was paying, after assistance and rebates. Gotta go to the city, and get the real tax burden when you’re doing these calculations. I learned this the hard way.
As for cars, I might in theory have the cost of the car in cash. But I’m never going to be sitting on say, 3x the cost of a brand new car sitting in savings, or whatever. If others are so flush, good for them. But there’s only a million things that need to be paid for (especially with kids) and sometimes financing allows for a little bit of flexibility. Gotta make sure you don’t abuse it though.
I got into a pretty intense back and forth about debt being a tool in the financial toolbox. It absolutely is when used responsibly.
I have a low interest car loan because paying cash didn’t make sense when the investments are doing a lot better. And yes, I’m grateful to be in that position. It took a lot of hard work and sacrifice plus a good helping of luck to get there.
I don’t borrow except for our house. We have a rate that draws refinance calls and emails and letters almost daily, but I don’t borrow for cars or anything else. Once my student loans are paid off, we will be 2 years away from paying off the house. Then I will owe nothing.
I like having only a few bills every month to pay. I have 5 bills a month to pay, and its nice to know that after the 4th of the month nothing else will be drawn that is not bought by me.
I have no idea what my credit score is, and I don’t really care. I don’t look at my investments, because it will be 25 or 30 years before I need them. I don’t play with my money to make more money, I just have a savings account and some rainy day money in a safe.
Growing up watching my parents live paycheck to paycheck and try and raise 4 of us, then going out into college and into a crash, then working to graduate late and straight into another crash has taught me to stay out of the speculation and nonsense as much as I can.
It makes life easy to just live within your means, fix what you have, and not buy stuff to just have stuff.
Preach, brother. The finance creatures will freak out about this unpopular take. But it’s the better take.
If I’m ready to purchase, they mostly change whether I finance or not. I always look at all my options. If I’m considering purchasing, I may purchase a little earlier if I’ll get a really low or 0% interest rate, and I may put it off if I hear rates are going down.
Honestly, though, a percentage point of difference is less than $100/year per $10,000 financed (since the loan will continue to get paid down, one would hope). It’s a lot more important on a 30 year mortgage on a home (six figures of principal and a lot longer loan really adds up).
Interest rate changes do change my investment strategies. When rates are high, I am more likely to throw some money into CDs or other interest-bearing accounts. When they are low, I tend to invest elsewhere.
Aside from the ongoing horror show of ICE and health insurance and cratering everything (not just Maserati), I wish that I could have things shipped here again. I collect model cars and most foreign vendors simply will not ship. For the ones that do I have to pay through the nose, and there is a significant chance that the packages won’t ever get here.
I have a bunch of packages currently sitting in a friend’s apartment in Berlin, waiting for better times, but that is less than perfect for several, obvious reasons.
Yeah, Burton in The Netherlands, the top vendor who would still ship 2CV parts to the US has had a pop up on their page about “temporarily” halting all shipments to the US. For numerous months now.
Economic isolation of the US from former trading partners isn’t going away any time soon. It’s only a matter of time before some items become unavailable here, and no, we can’t turn around and start manufacturing them tomorrow.
Yeah, the market for handcrafted 87th scale resin/photoetched models of vintage De Tomasos is slight (probably only a few percentage points of the overall economy) and I don’t remember seeing any government incentives designed to boost capacity.
Now that I think of it, I don’t see them trying to help any industry build up local capacity – all sticks, no carrots.
A coworker thought he would get an e-bike from Alibaba. I warned him about the tariffs, and he was somehow shocked to learn of them just last week. I was also shocked, but only because he was just learning of them.
Same; my mother went to Sweden and then sent me a package from there. And she wrote $110 for the dollar value, when the cutoff is $100… I am never getting my clogs. And this is after we had conversations about the tariffs and the de minimis exemption.
I personally experienced profound Quantitative Tightening the other day when I started to lose front end grip in the twisties.
This isn’t good news in general. Years of artificially low interest rates and very pro-ban reserve rates are largely what led to the 2008 crash. Artificially low interest rates will make inflation worse, savings less valuable, and encourage bad investments.
It also gives them no ability to lower rates when the line stops going up. Lowering rates when inflation is still a problem (and likely to get worse before it gets better) and the market is already overheated is a great way to contribute to a disaster.
No one here cares about rates because everyone who comments on finance articles only ever pays cash, only ever buys beaters, would never dream of “going into debt for a depreciating asset” and so on.
…some of us actually practice what we preach. For real.
I have never doubted people’s sincere belief in this; I’ve only found it mystifying.
I would rather have a savings account than debt, and I’d rather have a fun, interesting, old car in my driveway (or three in my case) than some unrepairable thing packed to the gills with screens and autobrake and other undesirable itemry. For me it’s win-win, and luckily my wife doesn’t care one way or the other as long as she’s at work on time.
Old, lower-value cars occasionally cost money to repair, but four 14″ GoodYear tires for my Toyota cost me less than my FIL paid for two tires for his 2022 Accord. My insurance for all three is less than half of what he pays for two newish cars.
Lastly, my old cars get me invites to Cars and Coffees – there is simply no new car in my price range (even if I sold the kids) that would do that. If I was wealthy, maaayyybe I would have one new, leased EV for convenience’s sake.
Agreed, completely mystifying.
I do those things, but I also do care about rates. Artificially low rates make inflation worse, and make my cash, and my paycheck, worth less.
There is no “natural” state of interest rates, and “artificial” is not an applicable description.
It’s all a human construct with tradeoffs each way.
Sure, fine. Strike “artificial”.
But I can look at the value of my dollar, and at overall inflation rates for the last five or so years. I also understand what basic effect the Fed’s interest rates have on inflation, what effect tariffs have on inflation, and understand that my dollar and paycheck are going to depreciate under the current economic policies.
So, whether one pays only cash or not, rates matter if you work on an income (i.e. not the wealthy government/corporate leadership) because the value of your dollar and the value of your paycheck matter.
Inflation is only good for people who live entirely on investments, where low rates drive corporate borrowing, and cheap money, and inflation drives a baseline increase in the numerical value of investments. Our glorious government/corporate leadership wants inflation.
I mean, if we are being fair, a lot of people can look at the value of their home and retirement accounts over that period as well.
As I said, everything is a tradeoff. Inflation helps borrowers and people with assets and hurts people without those things on fixed incomes. Same as it always was, same as it always will be.
My first comment about no one caring about rates was glib and should be seen as such. I don’t really disagree with anything you’ve said.
The problem is hand-waving away legitimate concerns as “human constructs”. Obviously, everything we’ve created is a human construct. Of course everything is a trade-off, because everything is bound by the laws of economics (and ultimately physics). At some point, speaking in such general terms becomes meaningless.
I don’t think I’ve handwaved anything away.
I don’t envy the Fed voting board. I’m sure it’s difficult to balance the tradeoffs and pressures inherent in such an important role.
I only take issue with the idea that there’s some “correct” place for rates to be. It’s a judgement call based on the best data available at the time. History will judge whether this rate cut was wise or not, but I’m not willing to pronounce it bad or “artificially low” just yet.
To put it another way, there would also have been legitimate concerns with either leaving rates unchanged or raising them. No choice would have been free of criticism or tradeoffs.
I have a problem with just saying “it’s really hard” so “let history judge”. That pretty much just lets anyone do anything without discussion.
Now, I’m not an economist, so if I misunderstand something fundamental, I’d love to hear it, with references and links if possible.
The Fed has an inflation goal of 2% that has worked for at least 30 years, and the point of interest rates is to heat or cool the economy. Just enough to drive job growth, but not too much to drive inflation and devalue the dollar.
Now, extremely high tariffs increase prices, low interest rates also increase prices (by making more money available, easy loans, etc.). 2025 is currently at about 3% inflation for the year, so not too bad, however the full impact of tariffs aren’t being seen yet, and low rates are only going to make it worse.
Coming off of 2021 (4.7%), 2022 (8.0%), and 2023 (4.1%), inflation is high, and hurting people.
Even if people can now get cheap loans, those loans are now for much more money because inflation makes the cars and things more expensive.
Inflation is indeed above target, but that is not the Fed’s only mandate. They are also obligated to pursue “maximum employment” and that goal is often at odds with the inflation target. Balancing the two is genuinely difficult, and it’s why, considering the poor job growth at the moment, they judged the inflation risk to be worth it:
https://www.cnbc.com/2025/10/29/why-the-fed-is-cutting-rates-even-as-prices-keep-rising.html
https://www.federalreserve.gov/newsevents/pressreleases/monetary20251029a.htm
We may look back on these cuts as a mistake, but they are not done “without discussion” or without clear eyed views of the downside risks.
Sometimes they get it wrong. I believe that happened in 2021-22 with the decision to leave rates low for too long. That doesn’t mean every decision to lower rates or settle for some inflation is always wrong on the merits.
Every aspect of the economy is a human construct. Does anyone believe that if another species had achieved sentience instead of humans, they would come up with same ideas?
The natural rate of interest is a very real and meaningful term. The overly simple version is that it is the rate that banks would need to charge borrowers in order to pay a high enough rate to attract depositors to supply the funds for the loans.
That may have been true in the past but is basically meaningless in the context of the fractional-reserve system in which we live.
Banks aren’t lending out Granny’s savings account to subprime F350 buyers.
I understand the current system all too well, but that doesn’t mean the term isn’t real or useful. It is meaningful because it is a baseline that helps understand the degree to which the reserve rate is heating or cooling the system. It is also helpful in understanding the inherent issues with the fractional-reserve system, how it will eventually collapse, and how it is a significant driver of ever-increasing inequity.
I care about rates a lot. But I’m playing the Canadian financial game. Props to those who are cash-liquid, I am not and my main family hauler is on life support.
This involves trading maple syrup futures and Tim Horton’s options, right?
I think it’s mostly just betting on hockey games.
Nothing else to do in those fish houses during the long winter.
Maple syrup, yes. Tim Hortons is a false flag. We’re currently trading in ass whoopins for LA based sports teams.
With a good chunk of America living paycheck to paycheck, it’s the only way.
I care about rates as I’d like to do a home purchase in the next four-ish years. I just care about limiting my cash outflows, so for me it means putting a ton down.
I’m in a heavily supply-constrained market and don’t expect some of the ongoing structural changes to materially affect prices as much as it would in the sun belt, or the southwestern portion of the US. I’m not getting a discount (relative to now) on any house here, though the push to waive inspections (I refuse) may finally subside. At least the bidding wars have largely stopped, but only so many homes are available.
Rate going down reduces cost. Though larger macro factors will likely have a larger influence in the greater Boston area for me than just rates alone.
EDIT: I also only plan on carrying the note for 5-to-7 years. Best way to reduce the impact of rates is to burn that principal down ASAP.
Of course historical rates are not lower because of the recent lowering of interest rates. Also the average rate paid including special financing rates doesn’t indicate the true interest rate climbing. In other words if someone who has a good credit score checks the rate at their local bank next week it is highly unlikely that they will be quoted a higher rate than they were last week.
So far they never have, because I’ve either been getting a loan out of necessity (once) or getting a loan that I knew I’d be able to pay off fairly quickly (the other 2 times), so as long as the rate wasn’t absurd I was ok with it.
They have had an impact in the past, but given my CX-30 is nearly paid off and I still love the car, so I won’t be back in the market for a while for a daily for a while. In the used realm, I have a policy of only buying second/fun cars in cash because they don’t often stick around for more than a year, and the rates on used cars are way too high to justify such a loan. Whereas buying in cash at least lowers my total cost of ownership as I’m not eating a financing charge, opportunity cost be damned.
Unfortunately for the general public, rates seem to make little impact on purchasing given the number of massive loans with deeply underwater cars out there right now. So so many people, regardless of income and debt load, work on monthly payment, not total cost of the loan, so they finance and extra year or two at an extra percent or two because it gets them under some arbitrary monthly payment threshold despite adding thousands to the cost of financing.
Applied tariffs because fentanyl and lowered those tariffs because of rare earth minerals. Can’t wait for this farce to be rubber stamped on 11/5.
On a side note, Donald is looking like absolute shit these days. Like that man has aged 20 years since 2021.
(Cue Ted Knight gif) “Well…. We’re waiting!!”
His Dorian Gray portrait was in the East Wing, and now that it’s been destroyed all of the aging it had absorbed is returning to him.
The corruption of belonging to the Dark Side is finally showing:
https://starwars.fandom.com/wiki/Dark_side_of_the_Force/Legends
Does anyone else wait to hear “the other guy’s” statement before actually believing what might have been discussed?
Did Xi put out a statement on what was agreed/discussed?
Coworker was proudly exclaiming that Toyota was going to invest 10 billion in the US, but having just read the Morning Dump I was able to tell him they committed to nothing.
Does it matter? Xi worked him, he knows how to manipulate Trump. Xi got everything he wanted. They likely hold the upper hand even more now.
Indeed, they’re all playing DJT like a fiddle. It would be hilarious to watch if our sacred democracy wasn’t being systematically destroyed in the process.