High interest rates have offset any concrete wins from stabilizing vehicle prices.

Inflation and its impacts are likely not going away anytime soon. That means high car loan interest rates will likely linger, too. While the Federal Open Market Committee announced the third federal funds rate cut in December, rates remain unusually high, which tends to drive higher rates on consumer loan products.

Unfortunately, this does mean that car loan interest rates are also high, though they have been on the decline. If you plan on buying a car soon, carefully compare rates with multiple lenders -- and if possible, wait and see if rates continue to fall over the coming months before you buy.

Choices by the Federal Reserve affect the benchmark rate, which has a domino effect on the cost of vehicle financing. Although rates depend on several factors -- including a borrower's credit history, term length, vehicle type and more -- increased inflation means even drivers with perfect credit face higher rates.

"One of the Fed's core duties is to keep purchasing power in check, and they do it by raising interest rates," explains Sarah Foster, senior U.S. economy reporter at Bankrate. To achieve this goal, the Federal Open Market Committee (FOMC) increased rates 11 times since March 2022. In September, the FOMC finally began cutting its target rate -- and it is now a full percentage point lower than at the beginning of the year, sitting at 4.25-4.5 percent. However, this is still higher than the historic norm.

According to Foster, high interest rates make it more expensive to borrow money. And that, combined with high costs, has been like a one-two punch to Americans' finances. She explains that this has left many drivers "resigned to finance an exceptionally expensive big-ticket purchase at an uncomfortably high rate."

Higher interest rates are just one result of the Feds' goal to quell inflation. "Higher borrowing costs don't just disincentivize spending but squeeze people out of being able to afford big-ticket items, causing the economy to slow," Foster says. Bankrate experts believe the Fed will continue cutting rates through early 2025. However, rates on auto loans are unlikely to significantly drop after this initial cut.

The increases can be attributed to the higher benchmark rate and more expensive vehicles. Stay up to date with changing news and how it affects your finances with Bankrate's Federal reserve hub.