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Your last chance for cheap auto loans?

[Jul 18, 2011.]


If you look back through this news blog's archives, you should find plenty of warnings that auto loans are likely eventually to become more expensive. This isn't rocket science; it's common sense. Interest rates are currently at or near historic lows, and it seems pretty much inevitable that at some point they're going to rise again.

Cheap auto loans to end?

But now there's a new and much more immediate reason to think that cheap auto loans could disappear, this time within weeks rather than months: the debt ceiling crisis. At the time of writing, the executive and the legislature are at loggerheads over allowing that debt ceiling to be raised. And economists seem about as united as they ever are about the likely effects of the U.S. government defaulting on its loans: significant--perhaps massive--increases in interest rates for government, business and consumers.

Yesterday, Mike Thompson wrote in The Detroit Free Press about what he expects to see in the aftermath of a default:

Failure to reach a debt ceiling agreement before the August 2 deadline would mean that legions of Social Security recipients would be without income, interest rates would shoot to the moon, America would plunge back into a deep recession, our military's ability to protect the country would be placed in jeopardy and the global economy could crash and burn.

Not just auto loans at risk

Thompson's analysis may be more pessimistic than others', but even CBS News said earlier today that default "likely would produce higher interest rates for consumers on mortgages, car loans and credit cards."

And you can see why Thompson might be especially sensitive to the fallout from any default. His readership is largely based in Detroit, which has seen a recovery in car manufacturing that many believe was largely fueled by cheap auto loans. Imagine the economic devastation in the city if Motown's fragile recovery were to be undermined by a sudden surge in interest rates.

Looking at how a default might affect the local economy in and around Washington D.C., Sunday's Washington Post remarked:

Automobile dealers, which are experiencing a steady improvement in sales after relying during the recession on government gimmicks like "Cash for Clunkers" and other incentives to move inventory, would watch auto sales plunge again with borrowing costs on auto loans soaring beyond the reach of customers.

Well, if auto dealerships around the nation's capital are at risk, imagine how much more badly hit those who work for car manufacturers (or companies that supply car manufacturers) would be.

Get your auto loan soon

Of course, there's a good chance that either the President or Congressional leaders will blink before the country defaults. And if that happens, there's no reason to expect any sudden or dramatic increase in rates. However, if you're skeptical about your elected representatives' abilities to reach an agreement, you may want to get yourself some competitive quotes for auto loans now. Just make sure you finalize the deal before August 2, because that's when the Treasury says default is likely to occur. Oh, and don't forget to make sure you get a fixed-rate loan!


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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