Business & Economy

Why rising interest rates aren't likely to slow down car sales

When loan rates do rise there's no getting around that only hurts sales, but the good news for automakers is that it is an indication of a stronger economy. (Photo: New cars sit on the sales lot of a Chevrolet dealership in Colma, Calif.)
When loan rates do rise there's no getting around that only hurts sales, but the good news for automakers is that it is an indication of a stronger economy. (Photo: New cars sit on the sales lot of a Chevrolet dealership in Colma, Calif.)
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When people buy a car, the terms of their loan can make or break the deal -- and for the last few years shoppers have taken advantage of low interest rates, even as low as zero percent.

That may soon become a thing of the past, since the Federal Reserve raised its key interest rate by a quarter percent.

But Southern California car shoppers may not see higher loan rates just yet.

Eric Lyman, vice president of industry insights at TrueCar, says automakers want to keep car loans low to spur sales, so they’ll be willing to eat some of the difference, at least for awhile.

“There’s going to be a lag between the federal funds rate increase versus when we actually see that materialize as a higher monthly payment at the dealership,” said Lyman.

Eventually the interest rate hike will begin to register at car dealerships, but Brian Moss, president of the California New Car Dealers Association said he's looking at the bigger picture - rising interest rates are overall an indication of a strong economy. Lower unemployment and more cash in consumers' pockets will likely bring continued business to car dealerships - enough to counteract any cooling from the rate hike.

"We expect sales to be strong in 2016," said Moss. "Our economist has projected we'll likely exceed two million new cars sold in 2016, which is the figure we're going to hit in 2015."

Moss said it helps that gas prices are low, and there is pent-up demand from buyers who have been holding off on big purchases since the Great Recession. 

“The average age of a car nationally is now 11 years old," said Moss. "A lot of people want to move into new vehicles.”

According to Lyman, December is the best month of the year to buy because of end-of-the-year sales. 

“Many automakers are pressed to reach year-end sales goals in December, and as such consumers have plenty of opportunity to take advantage of fantastic deals,” said Lyman. “With special holiday and year-end sales promotions available, consumers seeking the largest percentage savings off MSRP for the year should consider pulling the trigger.