PhotoThe price of new cars keeps going up, but fortunately for consumers, financing costs are coming down.

Automotive publisher Edmunds reports that the average interest rate on a new vehicle loan fell for the third straight month in July to 5.8 percent, it’s lowest level of 2019; it was 6 percent in June. Some car-buyers did even better. Edmunds reports that 35 percent of July’s buyers got an interest rate below 4 percent.

"Rising vehicle costs and high interest rates have been placing immense pressure on the new-car market all year, so it's nice to see shoppers get a bit of a reprieve," said Jessica Caldwell, Edmunds' executive director of insights. "Consumers are still in for a bit of sticker shock if they're coming back to the market for the first time in a few years, but the fact that interest rates are trending slightly lower is helping soften the blow."

Best deals are on 2018 models

Caldwell says interest rates on car loans have been sinking because manufacturers and their dealers have subsidized rates to clear out the remaining inventory of last year’s models. Edmunds estimates that 3 percent of new vehicles sales in July were 2018 models, the highest level of outgoing model-year sales of any July in Edmunds' records, dating back to 2002.

"The fact that there are still 2018 models sitting on dealer lots this far into the year is pretty disconcerting, but at least we're seeing that automakers and dealers are making a greater effort to get shoppers in the door," said Caldwell.

Incentive rates should continue falling this month in the wake of the Federal Reserve’s interest rate cut, announced this week. The Fed’s federal funds rate is going down by a quarter point, which is normally reflected in lower auto loan rates.

Caldwell doesn’t expect that to have much of a meaningful impact, but she predicts dealers will, in fact, continue to make financing more attractive for buyers over the next few months. That, she says, will have more impact on consumers’ monthly payments.

"Even with this move and automaker incentives, we expect to see average interest rates lingering in the 5 percent territory through the rest of the year," she said.

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