How refinancing auto loans can help drivers save
Auto loan industry reports say drivers can save an average of between $100 and $200 a month when they refinance their auto loans. And you may not have to wait until interest rates finally drop to reap the savings.
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- Forecasts vary for how many more times the Fed could cut interest rates in 2026. Some say one, two or even three more rate cuts ahead.
- Mortgage rates already have fallen as markets anticipated a Fed rate cut in December.
Cantankerous and increasingly cautious consumers — perhaps put on edge by seemingly shrinking paychecks, a weaker job market and stubbornly high prices — gave the Federal Reserve more room to cut interest rates for a third time in 2025.
On Wednesday, Dec. 10, the nation’s central bank cut short-term interest rates by a quarter percentage point. The Fed’s December rate cut drove the short-term federal funds rate to a target range of 3.5% to 3.75%.
The Fed noted in its statement that “job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments.”
The decision was not unanimous. “Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting; and Austan D. Goolsbee and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting,” according to the Fed’s statement.
For consumers, the Fed’s latest rate cut means lower rates on credit cards and home equity lines of credit.
The average rate for a home equity line of credit now is 7.81% — that’s down from an average of 8.55% a year ago, according to Bankrate.com data. HELOCs tend to follow the Fed, especially for existing borrowers, so another slow drift downward is likely.
Will mortgage rates fall even more?
If you’re wondering when mortgage rates will go down, the news isn’t all that promising.
Mortgage rates are down from a year ago but experts aren’t expecting rates to fall significantly in 2026.
The 30-year fixed mortgage hit an average of 6.19% as of Dec. 4, according to data from Freddie Mac’s primary mortgage market survey. The lowest average in 2025 was 6.17% for the week of Oct. 30.
Mortgage rates are a half of a percent lower than a year ago when the 30-year fixed rate mortgage averaged 6.69%.
The average 30-year fixed rate mortgage soared in the 7% range through much of January and even had been as high as 6.89% in late May, according to Freddie Mac.
Going forward, the trend for mortgage rates will depend on activity in the 10-year U.S. Treasury market, which serves as the benchmark for mortgages and other long-term rates.
“Mortgage rates are the most interesting —and difficult — to predict,” said Ted Rossman, senior industry analyst for Bankrate.com.
Mortgage rates are influenced much more by how the 10-year Treasury is trading and investor expectations, Rossman said.
“My best guess is that mortgage rates will decline slightly, on balance, over the next year,” Rossman said.
“But it could be a bumpy ride. If worries intensify about job losses and a possible recession, rates would fall further — but it wouldn’t be a great time to buy a house,” Rossman said.
He predicted that 2026 could be a volatile year for mortgage rates.
Inflation fears — and a possible loss of Fed independence — could promote spikes in mortgage rates at some points in 2026, Rossman said. On the other hand, bad news on the jobs front or a greater likelihood of a recession would trigger periodic dips in mortgage rates.
According to one forecast by Realtor.com, mortgage rates are forecast to average 6.3% in 2026, easing affordability pressures slightly, while home prices rise by 2.2%.
Will tariffs, higher prices ahead hold back Fed?
What the Fed does next in 2026 isn’t clear-cut.
Economic cloud cover remains when it comes to the most recent jobs and inflation data, which continues to be lacking following the 43-day federal government shutdown that ended Nov. 12.
We’re also still working out the kinks of on-again-off-again trade policies that involve sudden spikes in tariffs imposed by the Trump administration, often followed by delayed start dates and negotiations to lower levels for the new tariffs.
Will we see higher prices in some areas as more businesses pass along the higher costs of tariffs in 2026? Will we see more job cuts, as companies move to cut other costs, which will make consumers more reluctant to spend?
For much of 2025, experts say, many businesses cushioned the blow by not passing along price hikes due to significantly higher tariffs imposed by the Trump administration. Some experts say consumers should brace for more sticker shock ahead — and higher inflation, which could limit the Fed’s willingness to cut interest rates too much further in 2026.
The tariff story is far from over.
The United States-Mexico-Canada trade agreement, for example, is up for joint review by July. Imports from Mexico and Canada have been subject to U.S. tariffs this year, but analysts at Brookings note that “most trade across the three countries continues to face zero tariffs, underscoring the ongoing importance of the agreement.”
How many rate cuts will the Fed really need to initiate next year?
Honestly, we’re dealing with another unknown at this point — and hearing a range of best guesses here from economists for how often the Fed could cut rates in 2026.
Carl Tannenbaum, chief economist for Northern Trust, told the Detroit Free Press that he expects only one more rate cut — another quarter point cut — in the first half of 2026.
“We’re close to the end,” Tannenbaum said.
Higher prices could still be ahead in 2026
Inflation still is higher than the Fed’s target inflation rate of 2% and Tannenbaum maintains that prices for some goods could go higher in 2026 once the full impact of higher tariffs is felt next year.
This year, many companies stockpiled a great deal of inventory, particularly from China, anticipating a trade war. Now, those inventories are depleting and new orders will be made that reflect higher tariffs on many goods imported into the United States.
Many companies chose to absorb some of the higher costs of tariffs, cutting into profit margins, in 2025. But, Tannenbaum said, companies may be more likely to raise prices in 2026 on some goods.
While the job market has been tough to read, Tannenbaum said he does not see the unemployment rate spiking in 2026. He puts the odds of a U.S. recession at around 20%, which is relatively low.
If the unemployment rate remains relatively low and the stock market doesn’t face a serious setback, Tannenbaum said, the economy will have room to grow.
Does a weaker jobs outlook drive the Fed to cut further?
Could we, maybe, see two rate cuts next year?
University of Michigan economist Gabriel Ehrlich said the U-M economics team is projecting two rate cuts in 2026. The economists project two cuts of 25 basis points each, tentatively penciled in for Fed meetings in March and June next year.
That would follow three moves by the Fed policy committee to cut short term interest rates in 2024 and another three rate cuts at the last three Fed meetings in 2025.
Ehrlich, director of the Ann Arbor university’s Research Seminar in Quantitative Economics, noted that the labor market data available since the last meeting of the Federal Reserve Open Market Committee on Oct. 29 and Oct. 29 indicated a continued trend of gradual softening in the labor market.
He noted that consumption growth — the increase in spending by individual consumers and households on goods and services — was weak in September, the last month of available date.
“The partial data that we have so far for the current quarter are mixed,” Ehrlich said.
“Vehicle sales retreated in October and edged up in November. Johnson Redbook same store sales appear to be holding up. Consumer sentiment remains downbeat, though,” he said.
Would the Fed cut rates three times in 2026?
Others remain more pessimistic about the jobs outlook and see more room for the Fed to cut rates even further in 2026.
Mark Zandi, chief economist for Moody’s Analytics, said he expects the Fed to cut short-term interest rates three more times in the first six months of 2026. Each cut is likely to be a quarter point.
Job growth, Zandi said, has come to a standstill and the unemployment rate, while still low, is steadily rising.
And the Fed itself is on edge, facing ongoing threats by the Trump administration to its power to act independently when making decisions about interest rates and other monetary policy.
The Fed, Zandi said, “desperately wants to avoid a recession, as it would be blamed for it, which would significantly threaten its independence.”
Let’s not forget that Federal Reserve Chair Jerome Powell’s term as Fed chair ends in May.
President Donald Trump has been pushing for the Fed to cut rates further and will nominate someone who agrees with him.
“But will the rest of the committee agree?” Bankrate.com’s Rossman said.
What’s ahead for borrowers and K-shaped economy
If the Fed does drive short-term rates substantially lower in 2026, consumers could see much bigger declines in interest rates charged for credit card debt, home equity lines of credit and more.
The Fed’s December rate cut would lead to a rate cut of a quarter point for existing cardholders within a month or two, Rossman said.
Rossman noted that the Fed cut rates by a quarter point in September and October, so most cardholders have already seen a 50-basis point decline in their credit card rates.
The national average credit card rate being offered to new customers, though, probably won’t move much since that refers to new offers don’t necessarily need to change, Rossman said.
Just before the Fed cut rates in September, the first rate cut in 2025, the average rate for credit cards being offered to new customers was 20.12%. The national average being offered now to new cardholders is 19.83%, down 29 basis points, according to Bankrate.com
Rossman warned that long-term rates, such as mortgages, even could move higher if a string of rate cuts in 2026 stokes inflation and leads to questions about Fed independence.
We’re hearing many economists talk even more about a K-shaped economy — where some some groups saw their wealth shoot up and others saw their financial outlook slide down.
Better-off households saw an upward swing in that K as their portfolios climbed after stock prices soared on Wall Street, their home values rose, and their wages went up.
The downward slope in that K represents households that lost ground, many who do not own homes or have much money invested in stocks or 401(k) plans. Some consumers in this group lost jobs, saw their rents climb, and struggled further to make ends meet as prices remained high for groceries and other goods.
Middle and lower-income households, who don’t have significant stock portfolios face making payments on their debt, are struggling to maintain their spending, Zandi said.
Real consumer spending so far in 2025 has increased by only 1.3% annualized.
By contrast, Zandi noted, real consumer spending increased by 2.95% in 2024. “Typical spending growth would be closer to 2%,” he explained. “1.3% is weak growth.”
Right now, many consumers continue to spend on many items, but Zandi adds they are doing so with “limited enthusiasm.”
That could be one reason why consumers are seeing so many promotional prices and discounts early in the holiday season from a long list of retailers, including some offering higher-end brands to those built on everyday low prices and weekly sales.
“The well-to-do are doing the bulk of the spending, fueled by the surge in the value of their AI stock holdings,” Zandi said.
The runup in housing values and stock prices largely benefited already well-off consumers, Zandi said, because ownership of those assets is highly concentrated among upper middle class and wealthy consumers.
U-M’s Ehrlich said the AI boom has contributed to the rise in stock prices, while wage growth is slowing and limiting financial gains for people who depend on a paycheck.
If lower interest rates help re-energize the labor market or the residential construction sector, he said, households that are more dependent on wage income would see financial benefits.
From a consumer standpoint, continued declines in interest rates could help some consumers refinance their higher rate car loans and mortgages. Others could find it more affordable, Ehrlich said, to buy a home or car if interest rates are lower.
“From an employment standpoint, Michigan workers would also benefit from stronger vehicle sales in that scenario,” Ehrlich said.
No doubt, the Fed’s December rate cut soon will help many on the margin.
“The Fed’s rate cuts should result in lower credit card and home equity loan rates, as well as lower borrowing costs for small businesses that borrow from banks at the prime rate, which is tied to the federal funds rate,” Zandi said.
Unfortunately, auto loan and mortgage rates are not as directly tied to the moves that the Fed makes.
Rossman said many new car buyers are seeing offers where the average 60-month new car loan rate is 7.05% — down from 7.59% a year ago. It’s possible, he said, that average new car loan rates being promoted by lenders could fall slightly below 7% in 2026.
Bankrate’s data is based on a survey of banks in large markets around the country, based on what is being offered directly to consumers with a 700 credit score. The data doesn’t include dealer or manufacturer financing. Car buyers also pay higher interest rates on auto loans if they have lower credit scores.
But Zandi said the Fed’s rate cuts should help lower borrowing costs in general.
“Michigan’s economy will benefit most directly from more auto sales and production, but this is a small lift, as the Fed is widely expected to cut rates, so this is already reflected in borrowing costs and stock and other asset values,” Zandi said.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.
