Just because the Federal Reserve lowered interest rates doesn’t mean that automotive borrowers are getting a break. In fact, consumers should look elsewhere for affordability relief, says Cox Automotive.

Despite the quarter-point drop in the federal funds rate Wednesday to the 4% to 4.25% range, auto loan rates have actually inched up, Cox reported.

The average new-vehicle rate is up 34 basis points to 9.4%, or 75 basis points higher so far this year, though down 14 basis points year-over-year, says Cox Chief Economist Jonathan Smoke.

The reasons for the misalignment are tied to healthy consumer demand driven by those with more money to burn. On the new-vehicle side, decreased financing incentives have resulted from shrunken new-vehicle inventories. On the used side, it’s increased subprime loan rates and subprime loan growth, Smoke reported.

The downside is that higher rates driven by higher demand could in turn undercut demand this fall, Cox expects. On top of that, the already tight new-vehicle supply could get even tighter as auto production falls due to shifting regulation and trade policies. That would mean even fewer incentives and discounting.

Even if the Fed lowers rates further this year, and that’s an open question, consumers should lean more on any improvements they can make in their credit scores, Smoke advised. Just a one-level improvement can mean loan rates lower by two or more percentage points, he said.

Consumers with credit scores higher than 760 are securing average loan rates of 5.5% on new-vehicle loans and 7% on used-vehicle loans, well below the industry average, according to the report.

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