Consumers With Good Credit Are Seeing Lower Rates Despite No Change in Fed Rate Policy

The Federal Reserve left monetary policy unchanged today at the conclusion of its fifth scheduled Federal Open Market Committee (FOMC) meeting of 2025, which represented the fifth straight no-change decision. The policy statement and commentary from Fed Chair Jerome Powell haven’t changed much. Still, this decision featured dissension, and that alone suggests that if data continue trending the way it has, the Fed will cut before the year is over.

As announced during the June meeting, the FOMC’s median expectation was for two rate cuts in 2025. Financial markets are expecting two cuts as well, with one at the next meeting in September and the other in the final meeting in December.

Powell reiterated that the Fed remains “…squarely focused on its dual mandate,” so they are patiently waiting for data on inflation that reflects the impact from tariffs while they also monitor labor market conditions.

The Fed Funds Rate remains unchanged at 4.25-4.50%, which is widely considered to be restrictive, meaning that if the labor market does not deteriorate, in the absence of inflation picking up, it would be appropriate to cut rates.

The bond market sold off at the end of 2024 and the very beginning of 2025 with rising expectations of higher inflation as well as higher deficit expectations. The 10-year U.S. Treasury bond hit a peak in yield in mid-January. Since then, yields have moved up and down around 4.4%. Yields increased 5 basis points (BPs) today to 4.37%. The outlook for the 10-year is not very promising for yields to fall below 4%.

The move up in bond yields to start the year contributed to interest rates on auto loans increasing. The outlook for average auto loan rates to come down significantly is similar to the outlook for the 10-year. The average consumer is likely out of luck for a dramatic improvement in affordability, especially with tariffs likely to push new vehicle prices higher.

However, average auto loan rates have been declining modestly over the last two months, with the most improvement occurring on new loans to consumers with good credit. And that’s where consumers can make a difference in what they can afford without any assistance from the Fed.

More aggressive financing offers are driving the improvement in new loans this summer. July has seen a higher share of new loans with 0% interest rates than has been the case in any month over the last three years. This change is a notable shift in auto credit following very low levels of 0% offers this spring, when the tariff-induced buying frenzy caused supply to tighten.

It is highly likely that, with sales slowing, consumers will benefit from attractive financing offers for the rest of the summer, but the catch is that those offers are typically only available to well-qualified buyers. Nearly 7% of consumers financing new vehicle purchases at dealers in July are locking in a 0% APR. The average new auto loan rate is 9.06%, which is down 27 BPs so far in July and leaving it down 61 BPs year over year. For credit scores above 760, the average new auto loan rate in July is down to 5.4%, the lowest level since September 2022.

Putting this into perspective, the maximum amount the Fed is likely to cut in the future is less than 2 percentage points. 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. (Worth noting: Many consumers saw their credit scores fall by 100 points or more when student loan forbearance ended. Read more here: End of Student Loan Relief Reshapes Auto Lending)

There is an adage that “all politics are local.” In the case of auto loans, this may also be true: For a car buyer, a good credit score matters far more than any Fed decision. As noted, 0% financing rates are returning, but only for buyers with stellar credit. Indeed, rates are local, and buyers can benefit more by focusing on their own household finances and less on Jerome Powell and his FOMC.

Jonathan Smoke

Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.