Good News for Auto Loan Shoppers

When the Federal Reserve meets and changes rates, we all have questions: What does it mean to me? Will I be able to get a cheaper car loan when I replace my clunker? Bankrate is here to help. We've looked at five categories -- mortgages, home equity loans, auto loans, credit cards and certificates of deposit -- to determine if the Fed's moves made you a winner or a loser. Here's a look at auto loans:

Auto Loans

Winner: Auto loan shopper
After two big slashes to the federal funds target rate, auto loan shoppers can expect to see a continued decline in auto loan interest rates. "Back-to-back rate cuts is good news in that it will mean lower rates for car buyers," says Greg McBride, senior financial analyst with Bankrate.com.

"We will certainly bring down the auto loan rates here," says Bill Vogeney, senior vice president and chief lending officer with Ent Federal Credit Union.

"If we don't lend the money we have to invest it," he says. "If we're making significantly less on investments, then we should be able to lower rates on cars -- as long as we can lower the rates so that after losses, after the cost of operations, we're doing better than investments."

Despite an inclination toward lower auto loan interest rates, higher than normal losses at banks and lending institutions will temper the influence of the Fed's recent actions.

"We've heard for the past six or seven months that auto lenders were already pulling back on credit criteria, and if lenders are expecting higher losses, they may not reduce rates as much as you might expect," says Vogeney.

"Quite honestly, we had some higher losses in the fourth quarter of 2007. When oil prices spiked in early 2007, so did repossessions. That (the repossessions) will impact pricing. It probably won't impact pricing for the best credit -- FICO scores of 720 and above -- but where it will impact pricing may be borrowers with lower credit scores."

Take action
Don't expect to see big savings on your auto loan with less than stellar credit these days. However, the difference in interest rates probably won't affect whether or not you can afford to buy a car.

"Interest rates are not going to make a big difference to affordability as it would to someone say shopping for a home," says McBride.

"Even if you saw auto loan interest rates drop by a full percentage point, for somebody looking to borrow $25,000, that saves about $12 a month."

Do try to get the best loan possible by cleaning up your credit report and saving money by shopping for an affordable car. Finding out how much you can afford to borrow before heading out for a test drive will also help you in your search for a new ride.

Wednesday's Rate Cut -- Who Stands to Win and Who Could Lose:
Mortgages | Home Equity | Auto Loans | CDs and MMAs | Credit Cards