A tale of two types of automotive loan consumers has been shaping up as car price inflation and high interest rates combine to stretch budgets, with U.S. trade tariffs promising to further dent affordability.

The divergence isn’t expected to change any time soon, as the Federal Reserve kept interest rates stable again at its meeting Wednesday.

On the one hand, Cox Automotive reports that average auto loan rates have fallen slightly for two months, especially for new loans to borrowers with clean credit. In fact, zero-percent financing offers on new vehicles have been on the uptick for that segment.

July saw the greatest volume of zero-percent auto loans of any month in the last three years, reported Cox’s chief economist, Jonathan Smoke, who sees a good chance of such offers stretching across the summer.

“Nearly 7% of consumers financing new vehicle purchases at dealers in July are locking in a 0% APR,” Smoke said.

That’s after such deals proved scarce over the spring when consumers flooded the market with the intent of locking in pre-tariff prices, winnowing inventories in the process. Now auto dealers are looking to revive flagged sales since then. 

The average new-vehicle loan rate for consumers with credit scores higher than 760 was 5.4% in July, the lowest in nearly three years, according to Cox. But the overall average rate when factoring all borrowers is 9%. It's a gap at least some consumers could close some despite overall conditions, Smoke said.

“Putting this into perspective, the maximum amount the Fed is likely to cut in the future is less than two percentage points,” Smoke said. “Instead of waiting for that to happen, consumers can secure even lower auto loan rates by improving their credit tier by one level, or approximately 100 points.”

But such consumer strategy is challenging for many borrowers today, as a growing number of new-vehicle buyers are in negative equity on their trade-ins, Edmunds reported this week.

In a second-quarter report, the auto information resource said that more than a quarter of trade-ins – 27% – were under water for a four-year peak. The average amount owned on such loans was nearly $6,800, while 23% owed more than $10,000, and 8% owed more than $15,000.

"Affordability pressures, from elevated vehicle prices to higher interest rates, are compounding the negative effects of decisions like trading in too early or rolling debt into a new loan, even if those choices may have felt manageable in years past,” said Edmunds Director Insights Ivan Drury in the report.

“And as buyers take on new loans with much higher interest rates than those from just a few years ago, even potential tax deductions can't meaningfully offset the thousands more they'll pay in interest. With a growing share of upside-down owners thousands of dollars in the red, many are at risk of getting stuck in a cycle of debt that only grows harder to break over time."

Edmunds calculated the average monthly payment for borrowers who rolled negative equity into a new-car loan at $915 during the quarter, the highest the company has ever observed for the category. The overall industry average was $756.