Forecast: Bank 60-month direct car loan rate to stay below 5%

Bankrate predicted that banks would charge new- and used-vehicle buyers higher interest rates this year following a decline in 2021.

However, both 48-month used-vehicle loans and 60-month new-car terms would still end 2022 with average APRs below 5 percent, Chief Financial Analyst Greg McBride said Monday.

McBride predicted four-year used-vehicle loans would average 4.85 percent at the end of 2022, up from the 4.43 percent Bankrate reported for Dec. 29, 2021. He expected five-year new-model loan APRs would grow to 4.4 percent by the end of the year, compared with the 3.85 percent Bankrate saw at the close of 2021.

The 2022 forecasts represent increases above auto loan rates at the beginning of 2021 as well. Bankrate said the average 60-month new-vehicle bank loan was 4.24 percent on Jan. 6, 2021, while the average 48-month used-vehicle loan held a 4.79 percent APR then.

McBride's predictions apply to direct auto loans by traditional banks. But McBride told Automotive News that credit union and fintech direct lending on new vehicles would follow a similar pattern, and indirect auto and captive finance interest rates should remain favorable as well, he said.

McBride said banks tend to favor five-year loans for new vehicles rather than approve the kind of six- and seven-year terms accepted by other lenders. (Experian has estimated that the average new-vehicle loan during the third quarter of 2021 had a term of 69.54 months.) Loan length has been a lever for consumers to manage rising vehicle prices, but McBride said the banking industry hadn't loosened its term preference to a material degree during the increase in prices seen during the second half of 2021.

Asked whether consumer demand tended to contract noticeably once rates reached a certain threshold, McBride said, "We're nowhere near that." In fact, the market hadn't experienced such a collapse in a long time because of how low auto interest rates have been, he said.

During a 2015-18 environment of rising interest rates, "auto loan rates went up very little," McBride said. He attributed this disparity to competition among lenders and strong auto loan performance.

Price has a greater impact on consumer vehicle demand than rate, McBride said.