Interest Rate Trends for Credit Cards, Auto Loans, and Mortgages

Tracking interest rates over time reveals significant volatility over sufficiently long time periods. Mortgage rates are typically the lowest, credit card rates are the highest, and auto loans are somewhere in the middle. With reasonable certainty, we can predict only one thing about interest rates: they will change significantly over most 10-year periods.

Interest Rate Trends and Variance

Mortgage interest rates are typically the lowest, credit card interest rates are the highest, and auto loan interest rates are somewhere in the middle.

Mortgage Interest Rates

Tracking interest rates over the last 51 years with Freddie Mac data reveals that the last decade has consistently had the lowest rates, with every single monthly average remaining under 5% on a 30-year fixed-rate mortgage.

While rates have risen from a record-breaking low of 2.68% in December 2020, we are still seeing very low mortgage rates in comparison to previous decades. The mortgage interest rate in August 2022 was 5.22%, with an annual average of 4.72%. From 1971 to 2002, interest rates never fell below 6% and ranged from 6.05% to a high of 18.45% in October 1981. In fact, from 1979 to 1990, rates averaged more than 10% on a yearly basis.

Credit Card Interest Rates

Since 1994, when the Federal Reserve began tracking data, credit card interest rates have fluctuated far less than mortgage rates. Rates have ranged from a low of 11.96% in the second quarter (Q2) of 2003 to a high of 17.14% in the second quarter (Q2) of 2019.

Credit card interest rates are unlikely to fall significantly in the coming years, as credit balances remain at an all-time high despite high interest rates.

In contrast to mortgage rates, the government has no programs in place to encourage lenders to offer lower interest rates.

Auto Loan Interest Rates

Auto loan interest rates have fluctuated more than credit card interest rates but less than mortgage interest rates over time. Traditional 48-month new car interest rates have been tracked since 1972. They ranged from an all-time high of 17.36% in late 1981 to a low of 4.00% in late 2015. Since 2012, interest rates have remained in the 4.00%-5.5% range for the entire decade. For the last decade, interest rates have remained in the 4.00%-5.5% range. The 48-month new care interest rate was 5.15% as of May 2022.

According to 2022 research, the average car loan term length is approximately 70 months. The Federal Reserve started tracking 72-month new car interest rates in 2015, but the 60-month loan was tracked much earlier, in mid-2006. For the first two years, the 60-month new car loan interest rate remained stable between 7.18% and 7.82%, before falling below 7% in Q2 2008. Since the second quarter of 2011, interest rates have been below 6%. The 60-month new-car loan interest rate is 4.85% as of Q2 2022.

Since the Federal Reserve began tracking it, 72-month new car loan interest rates have been under 6%, with the highest peak at 5.63% in Q4 2018. In 2016, the rate dropped to 4.08% for two consecutive quarters. The 72-month new car loan interest rate is 5.19% as of Q2 2022.

Why Interest Rates Differ So Much by Loan Type

Credit cards have traditionally carried the highest interest rates because they are unsecured loans—that is, they are not secured by actual physical assets. Even though failing to make payments on a credit card loan will harm one's credit, there is no collateral that will be seized if payments are missed. Higher historical delinquency and charge-off rates, as a result, make credit card loans more expensive for lenders, as those costs are offset by higher interest rates passed on to consumers.

These factors, as well as the short-term and variable nature of revolving credit card loans, contribute to the interest rate differential when compared to mortgage and auto loans, which are longer-term, have fixed payments, and are secured by tangible assets.

While both new car and mortgage loans can result in borrowers missing payments and going into default, repossession or foreclosure of the loan collateral helps to mitigate the associated losses.

Securitization, which involves lenders packaging and selling bundles of auto and mortgage loans to investors, is another factor that tends to keep secured loan interest rates low. Loan securitization transfers risk liability from lenders to institutional and, in some cases, individual investors. Credit card receivables (account holders' outstanding balances) are sometimes securitized by issuers, but to a much lesser extent than mortgage and new car loans.

The influence of federally backed mortgage loans offered through the government-sponsored enterprises Fannie Mae and Freddie Mac is another factor lowering the risk and cost of mortgage loans. Neither organization directly originates mortgage loans, but both purchase and guarantee mortgages from originating lenders in the secondary mortgage market in order to provide access to qualifying low- and middle-income Americans and promote homeownership.

People who make only minimum payments on their credit cards or do not pay their balances in full are the ones who suffer the most from the most expensive type of credit. These debtors may become trapped in a never-ending cycle of high-interest credit card debt, especially if they are required to make monthly payments on other types of debt obligations, such as their mortgage or auto loan (despite their lower interest rates).

What is the Federal Reserve's role?

The Federal Reserve does not directly set your interest rates, but it does set the federal funds rate. Mortgage interest rates are typically lower when the federal funds rate is low, and higher when the rate is high or the market anticipates that the Fed will raise rates. On September 21, 2022, the Fed raised rates by 75 basis points (bps). So far, 2022 has seen the most aggressive rate increases on record, with more on the way.

Is my credit score a factor in my interest rate?

Yes, your credit score is a critical component of your borrower profile, which summarizes your creditworthiness. Because the lender believes you are less likely to default, the higher your credit score, the lower your interest rate. The lower your credit score, the more likely it is that you will have to pay higher interest rates and seek out a lender who specializes in high-risk borrowers.

What effect do interest rates have on my ability to purchase a home or car?

When interest rates rise, your monthly payment rises, but the total amount you can put toward principal decreases because you will pay more in interest. You can use our mortgage calculator or auto loan calculator to see how this works in your specific situation. As interest rates rise, your monthly payment becomes less affordable, and you may eventually be denied for a mortgage on the same home that you could have if rates were lower.

In conclusion

While mortgage and auto loan interest rates are rising, they remain historically low when compared to data from the previous 51 years. Credit card interest rates have remained significantly higher in comparison to other loan types over time, owing largely to the unsecured and transactional nature of that type of revolving loan product.