Fed Signals First Rate Cut in Two Years for July

The Federal Reserve chair made it clear in testimony last week that a rate cut is coming at the July meeting, barring any surprises in the next few weeks of data. This would be the first cut since 2024, and it matters for your next car purchase.

Auto loan rates have been parked between 7.5% and 9% for well-qualified buyers for nearly eighteen months. That's added roughly $80 to $120 per month to the average new car payment compared to the 2021 lows. A quarter-point Fed cut won't fix that overnight, but it starts the process. More importantly, it signals that cheaper money is actually on the horizon after years of tough talk about inflation.

What You Should Do

If you're shopping right now and can wait four to six weeks, wait. Lenders typically pass through Fed cuts within two to three weeks, and we expect auto loan rates to drop by at least 0.25% to 0.5% by mid-August. On a $40,000 loan over 60 months, that's $25 to $50 per month.

If you absolutely need a car this month, focus on manufacturer subvented rates instead of bank financing. Several brands are still offering promotional rates in the 4% to 5% range on select models, which beats anything you'll get from your credit union right now.

One warning: don't expect a return to the 2% to 3% rates from the pandemic era. The Fed is cutting because inflation has cooled, not because it's gone. We think auto loan rates will settle around 5.5% to 6.5% for prime borrowers by early 2027, assuming the Fed follows through with the three or four cuts the market is currently pricing in.

Check our refinance verdict if you financed in the last year at a high rate. You might have a second chance at a better deal by fall.