Bank of Canada Announces Interest Rate Drop: Here’s What it Means for Car Buyers

The Bank of Canada announced today that it will cut interest rates by 0.25 per cent, signalling to the market that better economic times are ahead. Here’s what that means for you if you’re looking to buy a car.

According to Baris Akyurek, the vice president of Insights and Intelligence at AutoTrader, the Bank of Canada’s move is good news for consumers, even if a 25 basis point decline in interest rates sounds small.

The drop will help consumers directly by lowering their monthly interest payments, making leasing or financing a vehicle more affordable than it would have been over the past few months. However, the psychological impact the rate drop has on Canadians may be just as significant as the savings.

A 25 basis point reduction “could signal to the market that the worst is over and better times are ahead,” Akyurek says. “This sense of optimism, echoed by several major Canadian financial institutions, could boost overall spending, from cars to other consumer goods, as people feel more confident about the future.”

That confidence boost may cause a shift in consumer behaviour. The recent high-interest rate environment has led many car buyers to turn away from conventional financing options, and to use their lines of credit, or home equity lines of credit, to make their auto loans more affordable. Dropping interest rates should help reverse that trend, and more consumers are likely to opt for a dealer or bank loan.

Ultimately, if you’re looking to buy a car, the Bank of Canada’s decision to lower interest rates is a reason to be optimistic and a sign that good things are coming.

With interest rates dropping, it’s the perfect time to see what vehicles you can afford by using AutoTrader's new auto loan pre-qualification tool.