The Average New-Car Loan Just Passed 10%. One Credit Tier Is Worth 10 Times the Fed's Hike.

If you’re shopping for a car this fall, the average new-car loan now costs more than 10%. Don’t blame the Fed for most of that. The bigger number on your payment is your credit tier, and you have more control over it than you think.

Cox Automotive’s Dealertrack data put the average new-car loan at 10.17% in September. That’s the first month at or above 10% since the series started in January 2015. A year ago it was 9.24%.

The Fed got the headline. It didn’t move your payment.

The Fed raised its target range a quarter point on September 16, to 3.75% to 4%. Cue the stories about car payments going up.

Here’s the catch. Cox’s own analysts did the math: a quarter-point increase, “fully passed through,” adds “just $5.50” to a new-car payment. That’s a sandwich a month.

Now look at what the tiers did over the past year. Super prime borrowers, the top credit bracket, went from 5.42% to 5.58%. That’s barely a move. Prime borrowers, the middle of the pack, went from 9.67% to 10.18%. Lenders kept the best customers comfortable and raised prices on the middle of the market. Near prime went up 0.60 points.

Cox put it more politely. Lenders, it said, “are keeping margins tight for better paper.” Translation: if your score is good, you get the good rate. If it’s average, you’re paying for the cycle.

What one tier is worth

Run a $40,000 loan over 60 months at September’s averages. Our arithmetic:

At the prime rate of 10.18%, you pay about $853 a month and $11,200 in interest.

At prime-plus, 7.33%, it’s about $798 a month and $7,900 in interest.

At super prime, 5.58%, it’s about $766 a month and $5,900 in interest.

One tier up saves about $55 a month. Two tiers up saves about $87. The Fed’s hike cost you $5.50. Your tier is worth 10 to 16 times as much.

Cox also says the average new-car payment has crossed $800 for the first time, $802 so far this year. And 17.8% of new loans now carry a payment of $1,000 or more, up from 13.3% in 2022.

Do this before you sign anything

Pull your score before you walk in. If it sits just under a lender’s tier cutoff, a month spent paying a card balance down can be worth more than any haggling on the sticker.

Get preapproved somewhere other than the dealer. Credit unions have been beating banks on car loans by real money. Walk in with a rate in hand and make the finance office beat it.

Don’t fix a 10% rate by stretching to 84 months. A lower payment on a longer loan still costs you thousands more.

Plug your real numbers into our loan calculator before you go, and check our loans hub for how lenders set rates.

The Fed moved a quarter point. Your score can move you a whole tier. Spend your effort there.

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