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Car Shoppers Could Pay More if U.S. Defaults

If the U.S. defaults, a loan or lease for a new car, like a Toyota Camry, will cost you more.

If the United States government can’t reach an agreement on whether or not to raise the debt ceiling, and ultimately defaults, consumers will pay more for an auto loan or lease.

“A default almost certainly could cause many types of interest rates to rise, thus making it costlier for businesses and consumers to borrow money for everything from building factories to buying homes,” the Los Angeles Times reports.

This includes car loans and leases for both new and used vehicles. Not only will auto loan rates go up, which means it will cost you more to borrow money for your vehicle purchase, but it will also affect leases. In an auto lease, the interest rate is known as the money factor and expressed as a decimal. Even though you don’t own the car at the end of a lease, you still have to pay interest to the leasing company who owns the vehicle during your lease term.

“A decision to cut the government’s credit rating … could also hurt the rest of the economy by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries,” Bloomberg reports.

Basically, it will costs banks and lenders more to borrow money, and they will pass that onto car shoppers in the form of higher interest rates.

“Interest rates would soar and lending would be squeezed,” Automotive News (subscription may be required) reports.

Ron Harbour, president of Harbour Consulting in Troy, Mich., told Automotive News that the effects of a government default would also spread beyond auto loans and leases. "It's not only the cost of borrowing for those who want to lease or purchase a car," he said. "It's the cost of borrowing money for suppliers and OEMs (original equipment manufacturer) and so forth."

The bottom line for car shoppers is that if the U.S. defaults, you can expect to pay more for your next car. What are your options? You could pay cash, but that is simply not an option for most car shoppers. If you were planning on buying or leasing a vehicle in the near future, you could always head to the dealership soon to avoid any jump in interest rates. Or, you could wait it out and see if our law makers can come to an agreement so the country doesn’t default on its debt. 

Shopping for a new or used car? Check out the U.S. News rankings of this year's best cars. Then, look for a great deal on a new car by checking out this month’s best car deals. Also, be sure to follow us on Twitter.

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