Published by Jessica Weisman-Pitts
Posted on March 14, 2023
5 min readLast updated: February 2, 2026
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By Bob Child, COO, Origence
Used car prices dropped 8.8% from January to December 2022 — the biggest dropoff since the end of the Great Recession in June 2009. But it’s not all good news for car buyers, because sticker price isn’t the only factor to consider when evaluating a vehicle’s affordability.
Interest rates have a significant impact on the cost of a new or used vehicle — and interest rates have increased more than 2% from January 2022 to 2023 thanks to the Federal Reserve’s strategy to tamp down inflation. Although a 2% increase may seem minor, it translates to a real-dollar difference in auto loan payments. For instance, a 7% interest rate on a $40,000 car means a borrower will pay an additional $2,232 over the life of a 5-year loan compared to the same vehicle with a 5% interest rate.
Sometimes shopping for a car isn’t an investment people can delay until economic conditions improve. But by evaluating their financial picture and shopping around for the best rates, it’s still possible for consumers to secure auto loans with favorable terms.
And more often than not, it means getting pre-approved for a loan before even setting foot on a car lot.
Auto loan challenges and misconceptions
When it comes to consumers’ biggest financial stressors, auto loans ranked third, behind mortgages and personal loans. That’s understandable given the myriad challenges and misconceptions car buyers face when searching for an auto loan. Common misconceptions include:
Buyers with nonexistent credit histories or low credit scores typically struggle to find a lender and competitive interest rate. But regardless of credit history, many buyers are unaware of the options available to them. Too often, this results in a buyer falling in love with a vehicle and accepting the first interest rate that’s offered to them at the dealership. These shoppers tell themselves they’ll refinance the loan later, but they rarely follow through.
Buyers who fail to research their options are more likely to end up with loan terms that can negatively impact their overall financial health. They may also miss out on loans that provide opportunities to improve their credit score.
The bottom line? Auto buyers can’t afford to rush the selection of a lender — there’s simply too much at stake.
4 questions for car buyers to assess their auto loan needs
Securing a loan with favorable terms remains achievable in today’s economic environment — but it requires borrowers to do some planning before visiting a dealership.
To gain a better understanding of their auto needs, car buyers should ask the following four questions:
Inflation continues to present barriers to vehicle purchases, especially for nontraditional buyers and buyers with low credit scores. In any case, it’s important for borrowers to remain patient and avoid going with the first lender they encounter. With knowledge of the loan process, an understanding of their needs and credit unions on their side, finding a favorable auto loan is within reach — and it doesn’t have to cause headaches.
Interest rates are the cost of borrowing money, expressed as a percentage of the loan amount. They can significantly affect the total cost of a loan over its term.
Preapproval is the process where a lender evaluates a borrower's creditworthiness before they apply for a loan. It gives buyers a clearer idea of how much they can borrow and at what interest rate.
A credit score is a numerical representation of a borrower's creditworthiness, based on their credit history. It helps lenders assess the risk of lending money to that individual.
Loan terms refer to the conditions of a loan, including the interest rate, repayment schedule, and duration of the loan. Understanding these terms is crucial for borrowers.
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