A five-year new-car loan from a commercial bank carried an average rate of 7.54 percent in August, the Federal Reserve reported October 7, up from 7.14 percent in the second quarter. A two-year personal loan averaged 11.90 percent, barely changed from 11.86 percent. The car-loan move of 0.40 points is the larger one, and it returns the five-year rate to where it stood in the first quarter, 7.53 percent. The six-year loan averaged 7.17 percent, cheaper than the five-year, which sets up a choice where the lower rate and the lower cost point in opposite directions.
The Fed publishes averages, not quotes, so what any one buyer is offered depends on the lender and the loan. Arithmetic on the averages still shows what the gap means. Financing $30,000 for 60 months at 7.54 percent works out to payments of about $602 a month and about $6,103 in total interest. The same amount over 72 months at 7.17 percent cuts the payment to about $514 but raises total interest to about $7,002, roughly $900 more, even though the stated rate is lower.
The Fed’s next rate decision lands October 27 and 28, the first since the September quarter-point increase set the target range at 3-3/4 to 4 percent.
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The six-year loan has the lower rate and the higher bill
The Fed’s table shows commercial bank rates for 60-month and 72-month new-car loans, and the longer loan is cheaper in both of the last two readings: 6.97 percent against 7.14 percent in the second quarter, and 7.17 against 7.54 percent in August. The two were identical at 7.53 percent in the first quarter. The five-year rate rose 0.40 points between the second quarter and August while the six-year rate rose 0.20 points, so the gap between them widened from 0.17 points to 0.37 points.
The lower rate on the longer loan does not make it the cheaper loan, as the $30,000 example shows. A 72-month term gives interest 12 more months to accrue on a balance that falls slowly in the early years. The Fed’s release does not break out rates by borrower credit score or down payment, so the averages cannot say which buyers receive which rate. They give a bank-market reference point for a loan of each length, and nothing more specific than that.
Finance companies price new cars about a point lower
Banks are one source of car loans. The G.19 also carries a finance company new-car rate, which according to the Fed’s explanation of the data comes from Experian’s AutoCount Risk Report and covers most captive and non-captive finance companies. That rate was 6.3 percent in June and in the second quarter, and 6.2 percent in the first quarter. Set against the August bank average of 7.54 percent, it is about 1.2 points lower, though the two are measured over different periods.
The Fed has not yet published a finance company rate for July or August, and its table lists both months as not available, so the comparison with banks rests on June. The bank five-year rate rose 0.40 points between the second quarter and August. Whether finance company rates moved with it will show only when the Fed fills in those months, and the release gives no sign of when that will be.
A two-year personal loan at 11.90 percent
A 24-month personal loan from a commercial bank averaged 11.90 percent in August, compared with 11.86 percent in the second quarter and 11.36 percent in the first. On $10,000 repaid over two years, that works out to payments of about $470 a month and about $1,286 in interest, roughly $60 more than the first-quarter rate would have cost. The increase is small in dollars, but it has come in two steps, and the second was the smaller of the two.
The widest comparison in the Fed’s August release is with credit cards. Card accounts that were charged interest averaged 22.36 percent, 10.46 points above the personal loan rate. A personal loan comes with a fixed repayment term where a card balance does not, but the Fed does not say how many borrowers move debt from one to the other, and the table measures only what banks charged on each product on average.
Loan pricing after the October 27 and 28 Fed meeting
The August bank averages were measured before the Federal Open Market Committee, chaired by Kevin Warsh, voted 12-0 on September 16 to raise the federal funds target range by a quarter point to 3-3/4 to 4 percent, according to the minutes of that meeting. Nonrevolving credit, the category that covers fixed-term loans such as auto and student debt, grew at a 4.1 percent annual rate in August to $3,844.4 billion, so borrowing for these loans was still rising when the rates were set.
The Committee’s next meeting is Tuesday and Wednesday, October 27 and 28, and the minutes say most participants judged another increase would likely be appropriate by year end. The Fed posts the loan rates free on its G.19 release page, which says new data come out around the fifth business day of each month. The next reading will show whether the five-year car loan keeps climbing while the six-year loan stays below it.
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This article was produced with AI assistance and reviewed by The Money Overview’s editorial team.
