Estimates of what will happen to consumer borrowing interest rates if the government defaults on August 2 are wildly divergent. But some expect that interests on loans could move at least .5% higher. That would certainly hurt the housing market, and could ding the new car market as well. Consumers already pressed by high gas prices and concerns about the economy may think twice about their next vehicle.

A long-term default on U.S. paper or a downgrade of America's debt will almost certainly add to all of the interest rates pegged to Treasuries. Industries that are already under sales pressure will face new struggles in the second half if that is so. June car numbers were disappointing in an industry which needs over 12 million new light vehicles sales a year for most of the manufacturers to be modestly profitable. The sales situation has not been helped by production that is off-line in Japan which has hampered the import of popular cars like the Toyota (TM) Prius.

A consumer who walks in a showroom today will find financing deals which range from 0% to 5% depending on the desperation level of the car company and dealer. Cars and light trucks with bloated inventory carry low interest rates and often "cash back." Those offers are supposed to grow as 2011 models need to be cleared out ahead of the new model year. Very popular cars in short supply, like the Prius, are sometimes sold above their sticker prices. Interest rates on loans for cars like the BMW 5-series are high - dealers can barely keep the German model in stock.

A car buyer who wants to get a new vehicle as 2011s go on sale or attractive 2012 models come to dealers for the first time, could have to pay hundreds of dollars in total monthly payments over the course of a three year loan at 3%, compared with a 2.5% rate before the government debt fiasco. On 60-month loans, a .5% increase could push total repayment up by $1,000 or more.

Good luck to the showroom dealers - this will be one to watch.

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18 Comments

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dentonm6

I would not consider a new car because the insurance company's prices keep going up. The sales tax increased in Arizona this last year. I don't want to buy a foreign car and the USA prices are not competitive. Also, what recently happened in Washington D.C. will no doubt put our country in jeopardy of losing our credit rating. 'Katy bar the door" if that happens! I am 82 years old and in good health. Even with the moneys and investments we had set aside for a comfortable retirement, I fear that I will outlive our money.. The last comment is due to the uncertainty that Washington has left in my mind.

August 03 2011 at 12:31 PM Report abuse rate up rate down Reply
Greg

If a .5% increase in an interest rate impacts one's ability to purchase a home or car, then one can't afford a home or car and should think about alternatives.

August 02 2011 at 6:38 AM Report abuse rate up rate down Reply
jhrochesterny

In 2002, I HAD to have a new pickup, not just a regular full size, but a crew cab 3/4 ton monster...at 16% interest rate too, since my credit wasnt the best. Since then Ive traded that in for a low mileage USED convertible, at much lower interest, better gas mileage too. When I paid it off, I also got a 2nd vehicle, also used, at 4.9% interest from my credit union. I dont think I would worry over .5% increase on a car loan given my past, not even if it went up 2%...my truck was more then than my mortgage is now!

August 01 2011 at 4:27 PM Report abuse rate up rate down Reply
totaltop44

Stop buying any big ticket items such as a house, acar .... Don't be stupid!

July 31 2011 at 6:27 AM Report abuse +1 rate up rate down Reply
wch2011

The debt capt has nothing to do with me buying a new car. The "sticker" price does!!

July 29 2011 at 3:46 PM Report abuse +6 rate up rate down Reply
Fed up Senior

Being retired, I am on a fixed income. As it stands, I am comfortable and have enough $'s to live on and enjoy my golden years. However, with this clown in the White House constantly spouting his bull$hit about "Income Redistribution", I have no idea how long it will last. So, my nest egg will stay with me because I may need it later. A new car would be nice, but not a necessity. It thoroughly pi$$es me off because he is doing nothing but trying to buy votes with the money from people who have busted their humps, all of their live, and simply want to live comfortably. Let's get rid of this clown in 2012.

July 29 2011 at 2:04 PM Report abuse +7 rate up rate down Reply
marine1942

Of course the Obama administration is worried that people in America will not buy Goverment Motors products. GM stock is near low of the year--thanks Obama

July 29 2011 at 1:44 PM Report abuse +5 rate up rate down Reply
1 reply to marine1942's comment
tmachine2

People who are real patriots and care about American jobs and an iconic company will support GM. I want GM to pay the taxpayer back, unlike you. Don't complain about jobs in the U.S. if you keep buying foreign cars and products. Being an ex-Marine, you should understand how important it is to have a manufacturing base for economic and national security. My family and the Army taught me that.

August 01 2011 at 12:21 PM Report abuse +1 rate up rate down Reply
bibbml

Of course first they are all over priced.................with this poor leadership we are experiencing we are lucky to buy food. The debt problem is the least of our problems. If people do not wake up we are going to loose all of your rights. They have given America away, sold it right under our noses. They are laughing at all of us, yes the elite, the ******** who own everything you can think of...........media, banks, fed reserve, oil, there are just a few of them but they are in control it has taken them years to work their plan, now they want your guns. Bush signed a law that gives the president the power to force Martial law on us, that is way to much power for one to have over us. There are so many new laws that have been put into our system which were signed without the people knowing. Yes , I am worried and you should be also........................start researching and see what they have planned, it is total control., look at what has been taking place lately. It is in the news, but be careful not to believe the media , just like bush coming out about 911, now he has a guilty conscience, why would this come out now, it is old news and sad what is up with these people.

July 29 2011 at 12:43 PM Report abuse +3 rate up rate down Reply
Lyloks

You bet it will, I was set to buy a new car before all this bad news hit the press ( & I can afford a new car ) AMERICAN MADE OF COURSE --- I will wait it out till 2012 & see how things are going.

July 29 2011 at 12:14 PM Report abuse +2 rate up rate down Reply
2 replies to Lyloks's comment
wch2011

Tell me, what car is "American made"? There is NO car on the market today that is totally American Made. There are some that are assembled in America. But none "made in America"

July 29 2011 at 3:49 PM Report abuse -1 rate up rate down Reply
1 reply to wch2011's comment
tmachine2

Sure there are American-based companies who use some foreign parts and assemble it here. I look for American-based companies that use at least 45+% domestic parts and also look where the profits and taxes go. Foreign companies manufacture here to avoid U.S. import quotas and tariffs. Also, the profits and taxes go back overseas. So, your comment is wrong. Plus, there are American-based companies who use 100% domestic content and manufacture here if you do some digging.

August 01 2011 at 12:25 PM Report abuse +1 rate up rate down
tmachine2

Buy American-made from Ford, GM, and Chrysler. There are plenty of models you can find online that are assembled in the U.S. Let's keep the profits and taxes in the U.S.

August 01 2011 at 12:27 PM Report abuse +1 rate up rate down Reply
dray907023

THE DEBT PROBLEM IS LIKE THIS . WHEN A HOUSEHOLD RACKS UP TO MUCH DEBT BY MAXING OUT THE CREDIT CARDS CAN'T MAKE THE MINUIM PAYMENT AND NOW IS TRYING TO GET ANOTHER CREDIT CARD SO THEY CAN MAKE THE MINUIM PAYMENT ON THE OTHER CREDIT CARDS USING THE NEW CREDIT CARD .

July 29 2011 at 11:38 AM Report abuse +9 rate up rate down Reply