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Anyone who’s tried to price car loans lately is wondering when car interest rates will go down. Auto loan rates have been high since the pandemic-era spikes of 2021 and 2022, and the average car loan interest rates are still trending well above 7%.
Although the Federal Reserve cut its target federal funds rate in 2025, various economic factors and auto industry challenges mean car loan APRs haven’t fallen nearly as low (or as quickly) as buyers would like. If you’re looking to finance or refinance your car soon, here’s what you need to know — and which trends to watch for.
Car loan interest rates are influenced by many economic factors. When the economy is running hot and inflation starts going up, everything begins to cost more — including cars. Costlier cars mean more risk for lenders, so they raise interest rates on car loans. When calculating interest on a car loan, this overall interest rate environment plays a part.
The Federal Reserve, the central bank of the United States, adjusts its monetary policy to keep inflation under control. One way it does that is by lowering its target federal funds rate, which is the rate that one bank charges another for overnight loans. Often, when the Fed cuts its target rate, other lenders cut interest rates as well.
So, with recent Fed rate cuts, are car interest rates going down? No, not really.
Car prices are high and will likely stay high due to tariffs on cars and car parts, even with some exceptions allowed by the administration. Even if the tariff situation eases, supply-chain issues and materials shortages are still affecting manufacturers, who pass along at least some of the cost to consumers in the form of high prices.
So even if the Fed lowers its target rate again, auto lenders won’t necessarily follow suit. If they do, it may not be quickly.
If not right away, when will auto rates go down? Experts predict more year-end rate offers in December 2025, and that things could start to look up in early 2026.
The financial analysts at Bankrate note that many auto customers have selected extended loan terms to try to get a handle on costs. Stephen Kates, senior financial analyst at Bankrate, points out that poor credit scores and lower down payments can also drive up interest costs for buyers, worsening the problem.
TransUnion, the consumer credit rating agency, notes that affordability and ownership costs are still challenging issues for many. TransUnion also noted that the number of people in the lowest credit tier increased in the third quarter of 2025, as did delinquencies on auto loans. These factors could complicate a lender’s risk assessment and keep rates elevated.
However, those who purchased a vehicle when rates were in the 8% to 12% range (or higher) may find that now is a good time to refinance to a new rate.
“We’re seeing a terrific opportunity for auto loan refinancing between now and second quarter of 2026,” says Reid Rubenstein, CEO of RefiJet. “This is especially true for buyers who are looking to adjust their monthly payment lower and for those who have some positive equity in their vehicle.” Those whose credit scores have improved since purchasing their vehicle may also find a refinance to be to their benefit.
Although current interest rate trends affect the price you pay for your car loan, remember that your creditworthiness has an important effect on your interest rate as well. Lenders will look at your unique situation when setting your rate, including:
Even when market rates are higher overall, your personal loan profile can have a positive impact. In fact, one of the biggest steps you can take toward a lower interest rate on your auto loan is to optimize your credit profile. Small changes in these areas can help you lower your rate and pay less in interest, too.
For example, less debt and more income can improve your debt-to-income ratio:
If you can, work on saving up for a bigger down payment, too, which can help you snag a lower rate, as can opting for a shorter loan (as long as it fits your budget). A 48-month auto loan tends to have a lower interest rate than a 72-month loan, for instance.
Use an auto loan refinancing calculator to plug in your numbers and play around with changing different variables to see the difference these changes could make on your auto loan.
If your credit score has improved since you first purchased your vehicle, you could qualify for a lower interest rate. Researching your refinancing options for an auto loan will help you find a new option that works for your budget.
Unfortunately, no one has a crystal ball for interest rates. Recent rate cuts indicate that there may be a drop in interest rates, especially in 2026. However, improvements to your personal situation could mean you don’t have to wait for big economic changes to happen in order to refinance.
Use RefiJet’s digital tools to check your interest rates without affecting your credit score. We offer online auto refinancing that can help you change your payment, lower your rate, and save money on interest.
Learn more about where car loan interest rates are headed with our answers below.
It’s possible that car loan interest rates could go down, especially in 2026. However, other pressures on the auto industry, including tariff costs and rising prices, are hampering a drop in rates.
Remember that rates dropped to the 3% range due to a widespread public health emergency that had drastic effects on the economy. It’s unlikely that auto loan rates will fall quite that low again without a major economic event.
You might be able to save money with a refinance even if the overall trend with interest rates is still high. That’s because interest rates are also dependent on your creditworthiness as a borrower.
Some experts suggest that rates won’t move much until early 2026, when it’s possible they could drop somewhat.
The Fed doesn’t directly set car loan rates. However, its monetary policy and the changes that it makes to the fed funds target rate do influence how much it costs for a bank to borrow money. That in turn can influence the bank to charge different rates for car loans. The treasury and bond markets, as well as your unique credit profile, also influence rates.
Find out how to refinance a car loan, from checking your credit to signing new paperwork. Learn when it makes sense and how to avoid common mistakes.
