After the Federal Reserve lifted the benchmark interest rate last week for the third time this year, economists are saying car buyers are feeling the pain -- and that increases slated for 2019 will further worsen an already-aggravated industry.
Despite acknowledging that not all Americans are benefiting from a strong economy, Fed Chairman Jerome Powell said at a press conference Sept. 26 that "growth is running at a healthy clip."
Policymakers under Powell agreed unanimously to lift the rate a quarter-point to a range of 2 to 2.25 percent. In the next year, interest rates should rise to at least 2.5 percent, and reports indicate most federal officials project the rate to settle between 2.75 and 3 percent.
The rate increases add pressure to an automotive business already bubbling over with affordability issues, according to Cox. Consumers paid, on average, $5,514 in interest alone over the life of their loans last month, according to Edmunds. That's more than $1,000 higher than last September and about $2,500 more than the total interest paid from five years ago.
Consumers are trying to offset interest rate increases by increasing down payments and shortening loan terms.
Edmunds calculated that as interest rates on new-vehicle loans climbed to 5.8 percent in September, from 4.83 percent a year earlier, the average down payment rose $381 to $4,198. New-vehicle loan terms shortened to 68.7 months, their lowest level this year.
The interest rate environment will not improve in the near future, said Jonathan Smoke, chief economist at Cox Automotive.
"The seven increases over the last 22 months have already changed the market from one that had peak new-vehicle sales two years ago to one that now has peak used-vehicle sales," he said in a statement.
Edmunds forecasts that if the federal interest rate rises to 3 percent, shoppers can expect total interest payments to jump about $600 next September to $6,117.