Feds Keep Auto Loan Rates Low

Feds Keep Auto Loan Rates Low

Feds Keep Auto Finance Rates Steady, Approves Portfolio Cuts

WASHINGTON (Reuters) – The U.S. Federal Reserve left interest rates unchanged on Wednesday but signaled it still expects one more increase by the end of the year despite recent weak inflation readings.

New economic projections released after the Fed’s two-day policy meeting showed 11 of 16 officials see the “appropriate” level for the federal funds rate, the central bank’s benchmark interest rate, to be in a range between 1.25 percent and 1.50 percent by the end of 2017.

That is one-quarter of a point above the current level.

“The labor market has continued to strengthen … economic activity has been rising moderately so far this year,” the Fed said in its policy statement. It added that the near-term risks to the economic outlook remained “roughly balanced” but that inflation was being watched “closely.”

The interest rate outlook for next year remained largely unchanged, with three hikes envisioned. But the U.S. central bank slowed the pace of projected monetary tightening from there.

It forecasts only two increases in 2019 and one in 2020. It also lowered again its estimated long-term “neutral” interest rate from 3.0 percent to 2.75 percent, reflecting concerns about overall economic vitality.

The Fed, as expected, also said it would begin in October to reduce its approximately $4.2 trillion in holdings of U.S. Treasury bonds and mortgage-backed securities by initially cutting up to $10 billion each month from the amount of maturing securities it reinvests.

That action will start a gradual reversal of the three rounds of quantitative easing the Fed pursued between 2008 and 2014 to stimulate the economy after the 2007-2009 financial crisis and recession.

The limit on reinvestment is scheduled to increase by $10 billion every three months to a maximum of $50 billion per month until the central bank’s overall balance sheet falls by perhaps $1 trillion or more in the coming years.

Chair Janet Yellen is scheduled to hold a press conference at 2:30 p.m. ET (1830 GMT).

The policy statement and accompanying projections showed the Fed still in the middle of a balancing act between an economic recovery that has kept U.S. unemployment low and is gaining steam globally and a recent worrying drop in U.S. inflation.

Three of the hawkish policymakers appeared to move their expected policy rate down to account for only one more hike by the end of 2017, leaving a core 11 clustered around a likely December increase. The Fed has raised rates twice this year.

The Fed noted that the recent hurricanes in the United States would affect economic activity but are “unlikely to materially alter the course of the national economy over the medium term.”

Forecasts for economic growth and unemployment into 2018 and beyond were largely unchanged. Gross domestic product is now expected to grow at a rate of 2.4 percent this year, 2.1 percent next year and 2.0 percent in 2019.

The unemployment rate is forecast to remain at 4.3 percent this year before falling to 4.1 percent next year and remaining there in 2019.

Inflation is expected to remain under the Fed’s 2 percent target through 2018 before hitting it in 2019.

There were no dissents in the Fed’s policy decision.

Best Resale Value Cars of 2017

Best Resale Value Cars of 2017

10 Vehicles with the Best Resale Value in 2017

You may value your vehicle now, but it would be nice if you could retain some of that value when you sell it.

As the pedals soften, the belts squeak and the features start losing their flair, your dream car just gets a little less appealing. Everything ages, and it’s difficult to expect a mass-produced item to retain its original value years after you initially purchase. The best you can hope for is that it holds on to at least a modicum of that value and gives you enough to take the bit out of buying a new one.

 Unless you decide to drive it into the ground or buy a less reliable model to save money in the short-term, your vehicle with still have significant resale value tens of thousands of miles down the road. Still, the folks at auto pricing and valuation site Kelley Blue Book note that depreciation costs a car owner more than gas, maintenance or insurance during the first five years of new-car ownership.

An average 2017 model-year vehicle only will retain about 32.9% of its original value after five years. That basically turns a $50,000 new car into a $16,450 used car half a decade from now. The majority of the market is filled with cars with average or below-average resale value, but there are some siginificant exceptions. In the colder sections of the country, for example a two-wheel drive vehicle’s resale value often will not be as high as a four-wheel or all-wheel drive version of that same model. In warmer climates, black (or dark-colored) cars will not have as high resale value as they could command in other regions.

Read More From TheStreet.com

Is Gap Insurance Worth It?

Is Gap Insurance Worth It?

When you purchase a vehicle from a car dealership, the sales pitch often includes gap insurance. The reason is that your car loses value the moment you drive it off the lot. In fact, the minute you sign the paperwork, your vehicle goes from being a new car to being a used automobile, and its value immediately decreases.

If you were to have a wreck in that brand-new car, your insurance company probably wouldn’t cover the cost of what you owe on it. They would only cover the cost of replacing your vehicle with one of the same value. This is why you should consider buying gap insurance when you purchase a new car. So what is gap insurance? Also known as guaranteed auto protection insurance, it will cover the difference between your car’s depreciated value and what you actually owe on your auto loan if your car is stolen or totaled.

If your car is demolished or stolen, gap insurance covers the difference between what your auto is worth (based on current market value) and the amount you still owe on your loan.


How to know if you will benefit from GAP insurance

Gap insurance is a wise choice in any of these circumstances:

  • You are purchasing or leasing a new or slightly used vehicle.
  • You are buying a vehicle of significant value.
  • You are financing a new or used vehicle without a large down payment, creating a “gap” between your vehicle’s actual value and your loan amount.
  • You do not have significant cash savings that would allow you to cover the difference between the amount you owe on your loan and the actual cash value if your car is stolen or totaled.
How important is your credit score

How important is your credit score


Is my credit score really the deciding factor on whether I will be approved for an auto loan?

Although your credit score is an important part of your approval process, it’s more an indicator on your interest rate.  People with less than perfect, or even bad credit, can still obtain auto loan financing as long as other criteria is met.  Some of those criteria are:

Debt-to-income ratio.
Debt-to-income ratio is a simple and intuitive measure of your ability to pay a prospective lender back. Having a lot of money in outstanding debts could decrease your perceived reliability as a borrower, and result in less friendly terms. The more income you have available, the more confidence the lender will likely have that you will pay them back, and you may be rewarded with more competitive terms.

Amount borrowed and down payment.
Lenders determine auto loan rates not only by assessing your credit worthiness, but also by considering how much they’re going to have to lend. Paying a significant portion of your auto loan via down payment can signal to a prospective lender that you can and will pay off your loan in a reliable manner. Similarly, borrowing an especially large amount of money or offering little or no down payment will up the risk for the lender, probably resulting in a higher interest rate to balance out the lender’s exposure.

In basic terms: The more money you can pay upfront for your new car, the lower your interest rates are likely to be.

Age of vehicle.
Generally, loans given out for used cars come with higher interest rates than those for brand new vehicles. This may seem counter intuitive, but it makes sense considering that older cars have already begun to depreciate in value. Car dealerships have less to gain by selling less expensive cars, and used car loans often come with shorter terms. These realities make it more likely that a prospective lender will try to recoup some value by considering higher auto loan rates on older cars.

Length of term.
Just like with the other factors, lenders will try to hedge their bets when it comes to the length of your term. The shorter the term of your loan, the quicker the lender can expect to get their money back, and the friendlier the terms usually will be. Keep in mind that while a short-termed loan may come with noticeably lower interest rates, your payments will likely be higher and the loan could put relatively more stress on your budget. If you’d like to space the repayments out over a longer time to provide yourself with more cushion, please keep in mind that you’ll probably pay a premium for the convenience with higher interest rates.