Will Auto Loans Get Cheaper in 2024?

It's pretty fair to say that 2023 has been an expensive year to borrow money. And the reason has to do with inflation and the Federal Reserve's response to it.

The Fed's job is to control monetary policy and do what it can to support a healthy U.S. economy. In 2022, in light of surging inflation, the Fed had to take action by raising its federal funds rate, which is the rate banks charge each other for short-term borrowing. The Fed has raised interest rates 11 times since early 2022.

One big misconception about the Fed is that it's tasked with setting consumer interest rates -- rates for products like mortgages and personal loans. In reality, those rates are set by individual lenders, and the Fed doesn't control what they do. However, because an increase in the federal funds rate makes short-term borrowing more expensive for financial institutions, they tend to pass that cost onto consumers who seek to borrow money.

Meanwhile, auto loan rates have been up this year as part of a broad trend. But will auto loans get less expensive in 2024? There's reason to believe they just might.

The Fed may be done raising interest rates, and rate cuts may be in sight

The Fed's goal is to cool inflation and, ideally, bring it down to 2% on an annual basis. In November, annual inflation was measured at 3.1%, as per last month's Consumer Price Index. That's not quite where the Fed wants things to be, but it's also not so far off.

Meanwhile, at its last three meetings, the Fed opted to pause its interest rate hikes and leave its benchmark rate where it is. Many financial experts are convinced that the Fed is done raising interest rates for the time being.

More so than that, if inflation continues to trend in the right direction in 2024, the Fed might start to cut rates. That could, in turn, lead to lower borrowing rates for a host of consumer products, auto loans included.

How to snag a good deal on an auto loan

Buying a car is an expensive prospect even when borrowing rates are more favorable. While rates could come down in 2024, it's fair to say that auto loans won't exactly be cheap as a result.

If you want to do your part to snag the best deal possible on an auto loan, work on boosting your credit score. Your credit score tells lenders how risky a borrower you are. A higher score sends the message that you're a reliable borrower with a history of repaying debts on time. And a lender might reward you with a lower interest rate on an auto loan if you apply with a credit score in the upper 700s or higher.

There are different ways you can go about boosting your credit score. One is to pay all bills on time. Another is to check your credit report for errors, since an error (like a debt listed in your name that you never racked up) could be dragging your credit score down.

Another step to take when financing a car is to shop around with different lenders. You may find that one lender is simply more competitive than another -- perhaps because it's looking to drum up business. So it always pays to do some rate-shopping.

Finally, the less you pay for a car, the less money you might have to borrow. If you're worried about keeping up with auto loan payments, try to avoid the temptation to upgrade to a fancier vehicle model or to buy the added features. Instead, aim for a car that's safe, reliable, and big enough to suit your needs.

There's a good chance auto loans will be less expensive to sign at some point in 2024. But you should also do everything in your power to set yourself up with the most favorable rate possible.