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Tracking interest rates over time shows us significant volatility over long-enough time periods. Typically, the rates will be lowest on mortgages, highest on credit cards, and somewhere in the middle on auto loans. We can predict only one thing about interest rates with reasonable surety: that rates will change significantly over most 10-year periods.
Key Takeaways
- Mortgage rates have fluctuated from a record high of 18.45% in 1981 to a record low of 2.68% in 2020.
- Credit card interest rates have fluctuated from a record-low 12.74% in 2014 to a record-high 17.14% in 2019.
- Auto loan interest rates have gone from a high of 17.36% in 1981 to a low of 4.00% in 2015.
- Mortgage rates have increased through 2022 but are still low in a historical sense.
- Credit card interest rates are unlikely to fall significantly.
Interest Rate Trends and Variance
Typically, the rates on mortgages will be the lowest, the rates on credit cards will be the highest, and the rates on auto loans will be somewhere in the middle.
Mortgage Rates
Tracking interest rates over the last 51 years with data provided by Freddie Mac shows that the last decade has had the consistently lowest rates, with every single monthly average remaining under 5% interest on a 30-year fixed-rate mortgage.
While rates have been climbing from their record-breaking average low of 2.68% in December 2020, we are still seeing very low mortgage rates compared to past decades. As of August 2022, the mortgage interest rate was 5.22% with an annual average of 4.72%. From 1971 to 2002, rates never dropped below 6% interest and fluctuated from 6.05% to a record high of 18.45% in October 1981. In fact, rates maintained a yearly average above 10% for the entire period from 1979 to 1990.
Credit Card Interest Rates
Credit card interest rates have had much less fluctuations than mortgage rates since 1994, when the Federal Reserve began tracking data. Rates have fluctuated from a low of 11.96% in the first quarter (Q2) of 2003 to a high of 17.14% in Q2 2019. Credit card interest rates are very unlikely to fall in any significant way over the coming years, as credit balances are at an all-time high in spite of high interest rates. Unlike with mortgage rates, the government doesn’t have any programs in place to entice lenders to offer lower interest rates
Auto Loan Interest Rates
Auto loan interest rates over time have fluctuated more than credit card interest rates but less than mortgage rates. Data goes back to 1972 on traditional 48-month new car interest rates. They have fluctuated from an all-time high of 17.36% in late 1981 to an all-time low of 4.00% in late 2015. Interest rates have remained in the 4.00%–5.5% range for the entirety of the last decade, since 2012. Interest rates have remained in the 4.00%–5.5% range for the entirety of the last decade. As of May 2022, the 48-month new care interest rate was 5.15%.
However, according to 2022 research, the average car loan term length is about 70 months. The Federal Reserve began tracking the 72-month new car interest rates in 2015 but tracked the 60-month loan much earlier in mid-2006. For the first two years, the 60-month new car loan interest rates were steady between 7.18% and 7.82%, until the rate dropped below 7% in Q2 2008. The interest rates have been below 6% since Q2 2011. As of Q2 2022, the 60 month new-car loan interest rate is 4.85%. The 72-month new car loan interest rates have been under 6% since the Federal Reserve began tracking it with the highest peak at 5.63% in Q4 2018. The lowest the rate dropped to was 4.08% for two consecutive quarters in 2016. As of Q2 2022, the 72-month new car loan interest rate is 5.19%.
Why Interest Rates Differ So Much by Loan Type
Credit cards traditionally carry the highest interest rates primarily because they are unsecured loans—i.e., not secured by actual physical assets. Even though defaulting on a credit card loan will damage one’s credit, there is no collateral that will be seized if payments are not made. Therefore, higher historical delinquency and charge-off rates make credit card loans more expensive for lenders, as they offset those costs through higher interest rates passed on to consumers. These factors, along with the short-term and variable nature of revolving credit card loans, drive this interest rate differential compared to mortgage and auto loans that are longer-term, feature fixed payments, and are secured by tangible assets.
While both new automobile and mortgage loans can involve borrowers missing payments and going into default, the repossession or foreclosure of the loan collateral helps mitigate the related losses.
Another factor that tends to keep secured loan interest rates lower involves securitization, which entails lenders packaging and selling bundles of auto and mortgage loans to investors. This securitization of loans transfers the risk liability from lenders to institutional and sometimes individual investors. Credit card receivables (outstanding balances held by account holders) are also sometimes securitized by issuers but generally to a much lesser extent compared to mortgage and new car loans.
An additional factor reducing the risk and cost of mortgage loans is the influence of federally backed mortgage loans offered through the government-sponsored enterprises of Fannie Mae and Freddie Mac. Neither organization originates mortgage loans directly, but both purchase and guarantee mortgages from originating lenders in the secondary mortgage market to provide access to qualifying low- and medium-income Americans to promote homeownership.
Those who suffer most from the highest-cost form of credit are people who make only minimum payments on credit cards or don’t pay their balances in full. These debtors can find themselves in never-ending cycles of high-interest credit card debt—especially if they need to make monthly payments on other types of debt obligations (despite their lower interest rates) like their mortgage or auto loan.
What role does the Federal Reserve play?
The Federal Reserve doesn’t set your interest rates directly but does set the federal funds rate. Typically when the federal funds rate is low, interest rates on mortgages are lower, and when either the rate is high or the market anticipates that the Fed will raise the rates, mortgage interest rates climb. The Fed most recently raised rates by 75 basis points (bps) on September 21, 2022. So far, 2022 has had the most aggressive rate increases on record with more expected to come.
Does my credit score impact my interest rate?
Yes, your credit score is an important part of your borrower profile, which sums up your creditworthiness. The higher your score, the lower your interest rate because the lender views you as less likely to default. The lower your score, the more likely you are to pay higher interest rates and have to seek out a lender that specializes in high-risk borrowers.
How do interest rates affect my ability to buy a home or car?
When interest rates rise, your monthly payment increases and the total amount that you can put to principal decreases, as you’ll be paying more in interest. You can see how this plays out in your particular situation by using our mortgage calculator or our auto loan calculator. As rates rise, your monthly payment becomes less affordable and you eventually may not be approved for a mortgage on the same home that you could have if interest rates were lower.
The Bottom Line
While interest rates on mortgages and auto loans are climbing, they are still historically low when considering data from the last 51 years. Credit card interest rates have remained dramatically higher over time relative to other loan types, largely due to the unsecured and transactional nature of that type of revolving loan product.