The Federal Reserve's September rate increase may not be the last one this year, and that matters for anyone planning to finance a car. Minutes of the Fed's September 15-16 policy meeting, released on October 7, say most officials judged that another increase in the federal funds rate "would likely be appropriate by year end."
At that meeting the Federal Open Market Committee voted 12-0 to raise its target range by a quarter point, to 3.75% to 4%. Scripps News reports it was the Fed's first increase since 2023. The committee's next meeting is October 27-28, and the minutes stress that officials will decide meeting by meeting based on incoming data.
Why the Fed is leaning toward higher rates
Inflation is the reason. Fed staff estimated that the 12-month change in the personal consumption expenditures price index, the Fed's preferred gauge, edged up to 3.8% in August, led by higher energy prices. Core inflation, which strips out energy and many food prices, was estimated at 3.4%. Staff attributed the rise mostly to past tariff increases, higher energy and input costs tied to geopolitical events, and higher prices for technology consumer goods linked to the AI buildout. They do not expect inflation to reach the Fed's 2% goal until 2029.
Several officials also flagged the possibility of further tariff increases as a risk that could push inflation higher. And the minutes note that low- and moderate-income households are under strain, with higher energy prices taking a bigger bite out of their budgets.
There is a counterweight. The September jobs report, released October 2, showed employers added just 29,000 jobs and unemployment rose to 4.2%, according to Scripps News. Investors are betting the Fed holds steady at the October meeting, which would leave a possible increase for December.
Car-loan rates were already moving up
The Fed does not set auto loan rates, but its policy rate and the bond market feed into what lenders charge. The Fed's consumer credit report, also released October 7, shows the average commercial bank rate on a 60-month new-car loan was 7.54% in August, up from 7.14% in May. The rate on a 72-month loan rose to 7.17% from 6.97%. The bank survey is taken in the first week of the middle month of each quarter, so the August reading came before the September rate increase.
Average commercial bank rates on new-car loans
| Survey month | 60-month loan | 72-month loan |
|---|---|---|
| August 2025 | 7.64% | 7.80% |
| November 2025 | 7.24% | 7.50% |
| February 2026 | 7.53% | 7.53% |
| May 2026 | 7.14% | 6.97% |
| August 2026 | 7.54% | 7.17% |
Source: Federal Reserve G.19 Consumer Credit release, October 7, 2026. Rates are APRs from a survey of banks in the first week of the middle month of each quarter; not seasonally adjusted.
Car buyers are already stretched. Edmunds says the average new-vehicle loan in the third quarter financed a record $44,664 at an average APR of 7.0%, with an average payment of $787. A record 25.5% of financed new-car buyers took loans of 84 months or longer, and 21.2% committed to payments of $1,000 or more a month.
A quarter point on its own does not change a payment much. On that $44,664 average loan over 60 months, going from 7% to 7.25% raises the payment from about $884 to about $890 a month, or roughly $317 in extra interest over the life of the loan. The bigger risk is a string of increases, combined with record prices and longer terms.
What car shoppers can do now
Rate quotes move with the market, so a preapproval from a bank or credit union gives you a number to hold the dealer to. Compare that with any manufacturer financing offer on the model you want; captive lenders sometimes subsidize rates to move inventory. If the payment only works at 84 months, a cheaper trim or a larger down payment will usually cost less than the extra interest. Most preapprovals are good for a limited time, so check the expiration date before the Fed's October and December meetings.
Vehicles in the photos are shown for illustration only.
