Why we're tracking interest rates' pulse

It seems that week after week, at least one story in the F&I Report cites rising interest rates as a headwind.

As I've written and edited such stories over the past several months, I've often asked myself, are we focusing too much on interest rates?

After all, compared with the historic levels of the early 1980s when the Federal Reserve benchmark rate climbed as high as 20 percent, interest rates aren't that high. In December, the Federal Reserve rate was a range of 2.25 to 2.5 percent, and after several years of extreme lows, rates will only go up.

But interest rate upticks are worth tracking; they are top of mind for the industry.

Many experts cite escalating interest rates as the single factor that will influence the auto finance environment most this year.

In January, the average interest rate on new-vehicle loans was 6.19 percent, the second-highest level in 10 years, according to Edmunds. That's up considerably from the average rate of 4.22 percent a year earlier. For used-vehicle loans, the average rate reached 8.88 percent, up from 7.58 percent the year earlier.

And if the Federal Reserve rate moves to a range of 2.75 to 3 percent by September, consumers will pay $6,117 on average in auto loan interest, according to Edmunds.

At the American Financial Services Association's vehicle finance conference last month, we asked experts this question: What do you expect to most affect the auto finance industry this year? We talked with leaders from banks, dealerships, auto finance technology companies, a credit bureau and an F&I product and training company. Eight of the 10 experts we asked pointed to interest rates.

Although rates remain far short of record highs, the rise is pricing some consumers out of the market. And dealers continue to adjust to the changes wrought by the jump. So we'll keep paying close attention. They're worth watching.