Higher Interest Rates Will Tamper Demand For Car Loans: Study

Researchers from the Federal Reserve Bank of New York have come out with a paper that projects the impact of rising interest rates on automobile loans.

Not surprisingly, the researchers concluded that a 100-basis point rise in interest rates would severely dampen demand for car loans from consumers. With the Federal Reserve Board expected to begin raising interest rates next month and through 2016, the rosy car sale numbers recently projected by the National Automobile Dealers Association may need to be adjusted.

If interest rates were to go up by 100 basis points, say from 4% to 5%, demand for car loans would fall by 3.25%, or 170,000 cars next year.

The paper is incredibly technical and includes a ton of formulas and supporting data to substantiate the claims being made. It does not go into the effects of rising interest rates on auto loan delinquency and default rates – which impact the number of repossession assignments.