Why Lower Taxes Could Lead to Higher Loan Rates

Car loan
Photo by Honeybee49 / Shutterstock.com

You may have tax reform to thank for a decreased tax bill and an increased paycheck, but the recent overhaul of the federal income tax code is not all good news.

One potentially costly example: It might lead to higher interest rates on loans, increasing your monthly car payment.

The New York Times reports that this stems from increased borrowing that the federal government will have to do to make up for bringing in less in taxes — that is to say, less revenue — under the revised tax code that became law in December.

After all, the Congressional Budget Office estimated in December that the tax code overhaul would increase the federal deficit by $1.455 trillion over a decade.

Borrowing money is nothing new for the federal government. But when the feds borrowed in the wake of the Great Recession, interest rates were at historic lows. Now that the economy has bounced back, interest rates are higher. Plus, when the government borrows more, that can also push interest rates up.

As a result, borrowing money is now more costly for the government — and in turn, the private sector. The NYT explains:

“It is a phenomenon that economists call ‘crowding out.’ Large-scale government borrowing sucks up the supply of available funds, driving up financing costs for just about everyone else.”

“Everyone else” includes car manufacturers, who pass increased costs on to consumers. According to the NYT, this is partly to blame for interest rates for new vehicles inching upward, reaching an eight-year high of 5 percent in February.

This news reminds me of Money Talks News founder Stacy Johnson’s recent warning about unintended consequences of major legislation. He wrote in “6 Important Take-Aways From the Tax Reform Effort”:

“Fact is, until the law has been in effect for a period of time, we can’t be certain what the effects will be.”

Obviously, the politicians who pushed tax reform either didn’t see this coming or knew better than to let on to voters. Either way, prepare for the possibility of car loan rates rising sometime soon.

If you have an outstanding auto loan, check out “8 Foolproof Steps to Get You Out of Debt Fast.” The sooner you can pay off the loan, the less money you will end up paying in interest.

How do you feel about this news? Sound off below or on Facebook.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
Here’s the Average Retirement Age in Your State
Here’s the Average Retirement Age in Your State

Are you on track to retire at the same age as most residents of your state?

8 Common and Costly Homebuying Myths
8 Common and Costly Homebuying Myths

Think you’re ready to buy a house? Don’t fall victim to these rookie mistakes.

Never Buy These 12 Things at a Thrift Store
Never Buy These 12 Things at a Thrift Store

Sometimes a great deal is not worth it — or, even worse, is dangerous.

5 Simple Steps to an Awesome Retirement
5 Simple Steps to an Awesome Retirement

The path to your dream retirement begins with these five steps. How many have you already taken?

It’s Worth Paying More for These 7 Things
It’s Worth Paying More for These 7 Things

Sometimes, the difference in quality makes it worthwhile to open your wallet a little wider.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on these familiar purchases. Yes, even pregnancy tests.

13 Brilliant Bulk-Buy Items on Amazon
13 Brilliant Bulk-Buy Items on Amazon

Every household should have these products on hand. Buying them in bulk on Amazon saves you cash.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

8 Deep Discounts Available on Amazon This Friday
8 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

Homeowners Say These 2 Kitchen Appliance Brands Are Best
Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

Is a Second Stimulus Check Still Coming?
Is a Second Stimulus Check Still Coming?

The status of another round of direct payments to taxpayers is a mix of good and bad news.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

8 Ways to Slash Your Internet Bill
8 Ways to Slash Your Internet Bill

No matter what price you are paying for internet service, taking these simple steps can lower it.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.