Car loan rates in a recession: what happens to interest rates, and when refinancing can help

Key takeaways

• Most car loans have a fixed APR, so your current rate usually won’t change, but you may be able to refinance if market rates and your credit profile improve.
• Interest rates often rise before recessions and can fall during recessions, but auto rates don’t always move immediately, and lending can tighten.
• As a benchmark, average APRs were about 6.56% (new) and 11.40% (used) in Q3 2025, varying widely by credit tier.

An economic recession is always cause for concern as people often worry about how one will affect their jobs and finances. However, it can also have a significant impact on your car and overall financial situation. During a recession, factors like rising interest rates, reduced spending power, and potential shortages in auto parts can negatively affect your car payments, vehicle equity, and even the stability of your car loan. Here’s what you need to know about how economic downturns can impact your car and finances.

What is a recession?

In the U.S., recessions aren’t “officially” declared by a simple GDP rule. The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months, and it notes that not every recession includes two consecutive quarters of negative GDP.

Why interest rates change around recessions

The Federal Reserve influences short-term interest rates by steering the federal funds rate into a target range, primarily using the interest rate paid on reserve balances and related tools.

• When inflation is high, rates may rise to cool demand.
• If growth weakens, the Fed may cut rates to support borrowing and spending.

Do car loan interest rates go down in a recession?

Sometimes, but not always quickly, and not evenly.
Auto loan rates are influenced by:

• Market rates (Treasuries, funding costs)
• Lender risk appetite (credit spreads can widen in downturns)
• Your borrower profile (credit score, debt-to-income, loan-to-value)

A key nuance: even if policy rates fall, credit can tighten in a recession. During the Great Recession, disruptions in financing markets reduced the availability of auto credit, contributing to the drop in auto sales.

Did you know?

If you choose to refinance your current car loan, your quotes are locked in and usually good for up to 30 days! See how you can refinance through Caribou if you are worried about future rates. See your savings within minutes.

Will my current car loan rate change during a recession?

Usually, no. Most auto loans are fixed-rate (simple interest at a fixed APR).
What can change is your opportunity to refinance into a lower rate (or different term), depending on:

• Your credit today vs when you took the loan
• Your vehicle’s value and your remaining balance
• What lenders are offering right now

When refinancing during a recession can make sense

Refinancing is worth exploring if one or more are true:

• Your APR is meaningfully higher than current offers
• Your credit score has improved
• You want to change your term (lower payment vs pay off faster)
• You’re concerned rates may rise again

Tip: If you’re shopping quotes, do it when you’re ready to act—market offers can move as lenders reprice risk.

Watch-outs: negative equity and approval standards

Recessions can pressure used-car values and household budgets. If your balance is higher than the car’s value (“underwater”), approval can be harder and the rate may be less favorable. (This is why paying down principal before refinancing can help.)

What you can do today (simple checklist)

1. Check your current APR and remaining balance
2. Estimate your car’s value
3. Pull a refinance comparison (soft inquiry when possible)
4. Compare options: lower APR vs lower payment vs shorter term
5. If the numbers work, lock and move

FAQS: Car loan interest rates during a recession

• Does a recession automatically lower my car loan rate?
  No. Most loans are fixed, and market rates + lender standards move independently.
• Do auto loan rates fall right after the Fed cuts rates?
  Not necessarily. Auto rates can lag depending on market pricing and lender risk.
• What are “normal” auto loan APRs right now?
  As a benchmark, Q3 2025 averages were about 6.56% (new) and 11.40% (used), varying by credit tier.
• Can I refinance my car during a recession? Yes, you can still refinance your car. Changes to interest rates can take some time to be registered and passed down to you through lenders. Moving quickly and early can be a good option when it comes to handling loans and recessions.

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