Overall, auto financing has remained strong, according to data from Experian. But the origination of new car loans for subprime borrowers hit a record low, according to Experian's data through the third quarter.
Smoke said he would expect more consumers with weaker credit to turn toward newer used cars in the next few years to hold down their monthly payments. Some might need to save up more for a down payment, as well.
Many consumers often focus on the monthly payment and just take out a longer car loan when rates climb higher. But the length of loan terms -- averaging around 69 months -- has somewhat plateaued, so extending that loan even longer to lower the monthly payment may not be an option as banks tighten credit, Cox Automotive experts said.
Low car loan rates still exist, even though the Federal Reserve raised short-term interest rates three times in 2017. Another three rate hikes are expected for 2018 and possibly two more hikes in 2019, Smoke said.
Nationwide, the average five-year new car loan rate is 4.49 percent now, compared with 4.35 percent one year ago, according to Bankrate.com.
Some credit unions and banks are even advertising rates at 1.75 percent or so. But again, the best car loan rates go to customers with the best credit scores.
Michelle Krebs, senior analyst at Autotrader, said affordability continues to be a challenge for many people, in part because wages have only begun rising for many households following the recession.
Consumers who borrowed money by tapping into variable rate loans will now face higher rates on those loans as the Fed raises rates. Payments will go up on credit card debt and home equity loans. Many families, Krebs said, will continue to focus on what they can afford for a monthly payment when shopping for a car.
How people feel about their finances, of course, will continue to greatly influence how they spend any extra cash from wage gains or even one-time bonuses.
Tim Dawkins, 32, said he'll probably use his $2,000 bonus from FCA toward custom wheels and tires for racing his car at Lapeer International Dragway in the spring.
Dawkins, who works as an electrician at Sterling Stamping Plant for Fiat Chrysler, said he feels very secure about his job, especially given the automaker's investment in the Sterling Heights plant.
Dawkins bought a white 2018 Dodge Charger, which has a 6.4-liter Hemi V8 engine, in May. Its sticker price was about $41,000. And he pays about $600 a month -- a loan payment that's roughly twice what some friends pay.
"I technically just didn't care. I wasn't hurting. So I got it," said Dawkins, who lives in Detroit.
About The Writer
Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at email@example.com.
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