New car prices have stabilized some after hitting an all-time high at the end of 2025, according to Cox Automotive's Kelley Blue Book. As of May, the average transaction price (ATP) paid for a new vehicle stood at $49,220 — a modest 1.2% increase compared to the same time last year and the smallest annual gain of 2026.
Still, the average cost of a new car remains historically high. New car prices skyrocketed during and after the COVID-19 pandemic due to supply chain disruptions and semiconductor chip shortages that slowed vehicle production. At the end of 2025, the average transaction price hit an all-time high of $50,326 according to Kelley Blue Book — and despite recent moderation, prices haven't strayed far from that peak.
The Bureau of Labor Statistics' Consumer Price Index (CPI) — a measurement of inflation and prices paid by consumers — showed new vehicle prices declined 0.3% in May compared to April, a further sign of new-car prices stabilizing.
What about used car prices?
Used car prices surged during the pandemic and have remained elevated. The average listing price for a used vehicle was $26,918 in May — the highest level since mid-2023 and an increase for the third consecutive month, according to Cox Automotive.
Higher used car prices have been driven by tight inventory and strong demand, particularly for older, more affordable vehicles. Shoppers on a tight budget face the most limited options. Vehicles priced under $15,000 are selling especially fast — dealers had only about a 33-day supply of those vehicles in May, compared to 45 days for the overall used car market.
Many consumers who are unable to qualify for a high-balance new car loan, or afford high monthly payments, have turned to used vehicles, further reducing supply. The Federal Reserve's June 2026 Beige Book, a summary of current economic conditions, noted that auto dealers reported softer new vehicle demand tied to affordability and fuel costs, along with increased consumer preference for used and hybrid vehicles.
There could be some relief ahead for used car shoppers. When drivers return leased vehicles at the end of their contracts, those cars often end up for sale on used car lots. In recent years, there was a shortage of off-lease vehicles, but this pipeline is expected to grow by nearly half a million units in 2026 compared to 2025, according to Edmunds. More inventory could help to stabilize prices and provide more options, although many of them will be electric.
The Consumer Price Index for used cars and trucks increased 0.1% in May, consistent with the broader upward trend in used vehicle prices.
Why are cars so expensive to begin with?
New and used car prices are high for a list of reasons.
- The COVID-19 pandemic slowed and in some cases halted vehicle production, causing new and used car prices to skyrocket. Prices have never fully returned to pre-pandemic levels.
- Many buyers continue to gravitate toward larger, pricier vehicles. Full-size trucks and midsize SUVs are among the best-selling segments, and both carry higher price tags that pull the overall average up.
- Ongoing inflation has increased manufacturing and labor costs, which automakers and dealers have in some instances passed on to buyers.
- Tariffs on vehicles remain in effect. However, the broad price spike many expected hasn't fully materialized, as many automakers have absorbed the costs rather than passing them directly to consumers. The increases that have occurred have been model-dependent.
- Many new cars now come with advanced technology, larger infotainment screens, driver-assistance systems and hybrid/EV powertrains — all adding to the cost.
Find a good loan based on current rates
3 auto loans found
LightStream
New car purchase loanBest for borrowers with good or excellent credit who want fast approval and funding to buy a new car.
Min score: 660
Min. Amount $5,000
Max. Amount $100,000
Est. APR: 6.99 - 15.74%
Term: 24 - 84 months
MyAutoloan
New car purchase loanBest for applicants who want to compare multiple new car purchase loan offers.
Min score: 600
Min. Amount $8,000
Max. Amount $100,000
Est. APR: 5.98 - 29.90%
Term: 24 - 84 months
Auto Credit Express
New car purchase loanBest for new-car buyers who can’t qualify for a lower-rate loan through a traditional lender and need help finding a dealer with subprime lending.
Min score: None
Min. Amount No min.
Max. Amount $100,000
Est. APR: N/A - N/A
Term: 24 - 84 months
What about auto financing rates and payments?
On top of paying high car prices, car buyers who finance have faced elevated interest rates and payments since the pandemic. Auto loan interest rates have decreased some since last year, but only slightly. The average annual percentage rate (APR) for new-vehicle purchases was 6.39% in the first quarter of 2026, down from 6.70% the same time last year, according to Experian's State of the Automotive Finance Market report.
Experian's report shows the average car payment was $770 for a new car and $531 for a used one in the first quarter of this year. Nearly one in five new car loan payments — 18.96% — topped $1,000 per month in the same quarter. To manage payments, buyers are increasingly turning to longer loan terms — more than 35% of all new vehicle loans in the first quarter carried terms of six years or longer.
The "one big, beautiful bill," which was signed into law in July 2025, includes an auto loan interest tax deduction, which is intended to help with vehicle affordability. Auto loan borrowers can deduct up to $10,000 a year for car loan interest for tax years 2025-2028. The deduction is available only for new cars with final assembly in the U.S., and the vehicle must be for personal use.
The deduction is “above-the-line,” meaning it can be taken by people who claim the standard deduction and those who itemize. It will begin to phase out for individuals with modified adjusted gross incomes over $100,000 ($200,000 for joint filers).
Car ownership costs increased in May
The upfront price of cars hasn’t been the only financial pain point for consumers, as shown by the NerdWallet Vehicle Ownership Costs Index, which is a measurement of inflation and spending figures from the BLS.
Car ownership costs grew at a double-digit annual rate every month from April 2021 to November 2022, according to NerdWallet's ownership index. That growth has slowed dramatically, but the most recent data shows ownership costs grew 9% in the 12 months ending May 2026, owing largely to the increase in gas prices due to the war in Iran.
Is now a good time to buy a car?
While it isn’t necessarily a good time to buy a new or used car due to historically high prices, car prices aren't expected to decrease dramatically anytime soon. Delaying a purchase isn't likely to provide a significant cost benefit.
If you proceed with buying a new car, look for incentives. Kelley Blue Book reports that incentive spending by automakers rose to 7.1% of the ATP in May, up from 6.8% the previous month. The most generous incentive offers were for EVs, luxury vehicles, compact cars and full-size pickups. Shoppers in those segments may find more incentives and room to negotiate price.
If you are someone who simply can't fit a high car payment into your budget right now, and you can delay buying a car, that could be your best option. Focus on paying down other debt and saving toward a larger car loan down payment, if possible.
Also, if you do move forward with financing a car and interest rates fall after your purchase, look into refinancing your car to a lower rate later.
How to find the best deal on a car
To increase your chances of finding a car that meets your needs at the best price, here are some tips to follow.
- Shop around and be flexible about make and model. Some models and trim levels are being affected by tariffs more than others. Also, previous-year models may be a better deal than new models.
- Look at auto manufacturer websites for incentives and any special pricing promotions.
- Check online pricing guides, such as Kelley Blue Book, Edmunds or NADA guides, to know what price you should pay.
- If financing, know the ins and outs of getting a car loan, so you can get more favorable terms.
- Compare auto lenders to find the best rate.
- Use an auto loan calculator to determine the best scenario — loan amount, interest rate, term and down payment — for a monthly payment that fits your budget.
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- 1. Cox Automotive and Kelley Blue Book. Kelley Blue Book Report: New-Vehicle Price Increases Moderate in May, Incentive Spending Grows. Accessed Jun 10, 2026.
- 2. Cox Automotive and Kelley Blue Book. Kelley Blue Book Report: As America Spends a Record $15 Billion on Full-Size Pickup Trucks in December, New-Vehicle Prices Hit New High. Accessed Jun 15, 2026.
- 3. Bureau of Labor Statistics Economic News Release. Consumer Price Index Summary. Accessed Jun 15, 2026.
- 4. Cox Automotive. Used Vehicle Sales Pace Slows in May as Prices Climb Higher. Accessed Jun 15, 2026.
- 4. Cox Automotive. Used Vehicle Sales Pace Slows in May as Prices Climb Higher. Accessed Jun 15, 2026.
- 6. The Federal Reserve. Beige Book - May 2026. Accessed Jun 15, 2026.
- 7. Edmunds. Used Car Prices Approach Records, But Steeper Depreciation, Growing Off-Lease Inventory Offer Some Relief. Accessed Jun 15, 2026.
- 3. Bureau of Labor Statistics Economic News Release. Consumer Price Index Summary. Accessed Jun 15, 2026.
- 9. Experian. State of the Automotive Finance Market Report: Q1 2026. Accessed Jun 15, 2026.
- 10. IRS.gov. One Big Beautiful Bill Act: Tax deductions for working Americans and seniors. Accessed Jun 15, 2026.
- 1. Cox Automotive and Kelley Blue Book. Kelley Blue Book Report: New-Vehicle Price Increases Moderate in May, Incentive Spending Grows. Accessed Jun 15, 2026.
