Fed Continues Interest Rate Increases

Affordability of new vehicles improved over January but remained worse than a year earlier and well above what the typical American household can afford. - IMAGE: Pixabay/NikolayFroloch

Affordability of new vehicles improved over January but remained worse than a year earlier and well above what the typical American household can afford.

IMAGE: Pixabay/NikolayFroloch

The Federal Reserve instituted another quarter-point interest rate hike today in a series of increases that started a year ago to try to tamp down inflation.

The ninth hike in the series to the Fed’s benchmark rate is making it harder for some consumers to borrow money for purchases, such as vehicles.

Affordability of new vehicles improved over January but remained worse than a year earlier and well above what the typical American household can afford, according to Cox Automotive/Moody’s Analytics Vehicle Affordability Index.

The typical household can afford a $400 a month car payment, but February’s average monthly payment as at $765.

Year-over-year vehicle loan debt per borrower increased 4.4% in the fourth quarter to $16,769, according to TransUnion. It was the 11th straight quarterly increase. The year-over-year 60-day delinquency rate rose 1.04% but stayed under the fourth-quarter average between 2007 and 2013.

“While we observed an uptick in auto loan delinquencies, there are reasons to believe they will continue to remain relatively low in the near future,” said Pete Turek, vice president of automotive in TransUnion’s financial services business unit.

“First, while auto loan originations are increasing at a rapid pace, the percentage of nonprime accounts remains low. In fact, the percentage of nonprime borrowers for all auto loan accounts was lower in the [fourth quarter] than it was the previous year.”

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