High Interest Rates Can Make a 2023 Ford F-150 $7,000 More Expensive

Zero-percent financing deals may be impossible to find these days, but how does that affect your ability to afford a new car? Even though interest rates may creep downward this year, rates are still far higher than they were in 2021 and 2020. While auto loan interest rates once hovered around 2.5 percent, that number has shot up to about 6 percent (depending on the buyer’s credit) as the Fed responds to rising inflation. Just this week, the Fed raised raised interest rates by a quarter percentage point—not a lot, but it’s the eighth increase in about a year.

What does all this mean for popular vehicles such as the Ford F-150 pickup, the Toyota RAV4 compact SUV, and Tesla Model 3 EV? We calculated the amount buyers can expect to pay after interest to figure out just how much of a difference a few percentage points can make.

High Interest Rates Can Cost You This Much on an Auto Loan

Popular cars, even affordable favorites, can become far more expensive when financed at a high interest rate over a long loan term. The 2023 Ford F-150, the most popular vehicle in the United States, starts at $36,340. If you took out a 72-month loan for that sum at 6 percent interest, you’d end up spending $603 on every monthly car payment and a total of $43,416, nearly $7,000 more. At a more typical interest rate of 2.5 percent, the monthly payment would be $545 and the overall expenditure would amount to $39,240.

It’s a similar story with the 2023 Toyota RAV4, which starts at $29,310. After all monthly car payments of $486 are made on a high-interest loan over a six-year period, buyers end up paying about $35,000. At 2.5 percent instead of 6 percent, those figures drop to $439 a month and $31,608 overall. Taking out $45,380 for a 2023 Tesla Model 3 results in a total expenditure of $54,216, with monthly car payments of $753 until the loan is paid off. If you can find a 2.5-percent rate, the same Model 3 would cost $48,960 per $680 payment over the same period of time. Check out the chart below to see the difference between the amount paid at MSRP, a 72-month loan at 2.5 percent, and a 72-month loan at 6.0 percent for popular cars.

How Do I Spend Less on My Auto Loan?

What can buyers do to avoid these high auto loan costs? One of the best ways is to finance over a shorter term. Instead of going for 72 months, try a 60-month loan and consider less expensive trims of your preferred car to lower the monthly payment. Another option? Consider your second pick if that vehicle is currently being offered with lower interest rates and if you don’t plan on putting down more cash up front. Depending on what type of car you’re interested in, we may see car prices fall, or at least plateau, by the end of the year. However, we suggest being honest about your budget when it comes time to finance a new car. When faced with interest rates that are higher than they were the last time you bought a car, if you’re careful, you can avoid overspending.

Tips to Lower Car Payments and Financing Costs:

  • Consider financing a shorter term to lower interest costs over the term of the loan. Instead of 72 months, try 60 months
  • Go for a lower trim level to reduce the amount you’re financing
  • Try your second pick if it’s offered with significantly better financing terms
  • Offer a larger down payment

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