Are Car Prices Going Up or Down?
What to know about car prices and payments in today's car market.
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In August, new-vehicle prices began to increase. According to Cox Automotive's Kelley Blue Book, the average transaction price (ATP) paid for new vehicles last month was $49,077 — an increase of 0.5% from July and up 2.6% compared to a year ago
Automotive research website Edmunds placed the August new-vehicle ATP at $48,365 — an increase of 0.8% over the company’s July average price and 1.9% over the previous year.
How are tariffs affecting car prices?
Despite expectations that auto tariffs implemented in April would push already high car prices even higher, average transaction prices for vehicles have remained relatively steady.
Although car buyers haven’t faced drastic increases this year, it appears many automakers have been absorbing tariff costs instead of passing them to consumers. Recent financial reports from several carmakers — including General Motors, Ford, Toyota, Honda, Nissan, Subaru and Hyundai — attribute millions or billions of dollars in losses directly to tariffs.
Tariffs affecting car manufacturers include those on imported vehicles, foreign-made parts and production materials, such as steel, aluminum and copper.
What’s still in question is if and when carmakers will begin to pass at least some portion of tariff costs on to consumers. In August, Cox Automotive suggested that 2026-model-year vehicles, as they hit the market, could usher in more tariff-related price increases
What about used car prices?
Used car prices reached record levels during the pandemic and have remained there. In August, the ATP of three-year-old vehicles was $31,156, according to Edmunds. This was near the all-time record of $31,628 set in 2022 and a 5.5% increase compared to the same time in 2024.
Currently, the increase in used car prices is related less to tariffs and more to tight inventory caused by factors like fewer lease vehicles being returned and drivers keeping their cars longer.
If new car prices continue to rise, more buyers may turn to used cars — tightening supply, increasing demand and pushing prices already at historic highs even higher.
Why are cars so expensive to begin with?
Regardless of tariffs, new and used car prices are high for several reasons.
- At the height of the Covid-19 pandemic, supply chain disruptions and semiconductor chip shortages were responsible for slowing, and even halting, vehicle production. As car inventory decreased, new and used car prices skyrocketed and remain elevated.
- Ongoing inflation has increased manufacturing and labor costs, which car manufacturers and dealers have in some instances passed on to car buyers.
- Many new cars come with advanced technology, larger infotainment screens, driver-assistance systems, and hybrid/EV powertrains — all adding to the cost.
New car prices climbed 22% since 2019
According to the consumer price index (CPI), which is a Bureau of Labor Statistics measurement of inflation and prices paid by consumers, new vehicle prices have increased 22% since 2019
Recent CPI reports have shown the new vehicle index ticking up and down slightly throughout 2025 — and a 0.7% increase for the 12 month period ending in August. The used car and truck index increased 6.0% over the same time period
Currently, new car prices continue to hover near 2022’s all-time highs, which Kelley Blue Book places at $49,958. They’re also approximately $11,000 higher than before Covid-19.
What about auto financing rates and payments?
On top of paying high car prices, car buyers who finance face elevated interest rates and payments. Average auto loan interest rates increased to their highest level in years during the pandemic and have barely budged since.
When the Federal Reserve changes the federal funds rate, auto loan interest rates tend to march in the same direction, even though the two aren’t directly linked. Below is a chart showing recent moves in the federal funds rate. While it has held steady throughout 2025, the first rate cut of 2025 occurred in September.
The average car payment in August was $757 for a new car and $565 for a used one according to Edmunds. The company also reported that nearly 20% of new-car buyers committed to a monthly payment of $1,000 or more in the second quarter of this year
The "one big, beautiful bill," which was signed into law in July, includes an auto loan interest tax deduction, which is intended to help with vehicle affordability. Auto loan borrowers will be able to deduct up to $10,000 a year for car loan interest for tax years 2025-2028. The deduction will be 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)
Rising car ownership costs have slowed
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 — the most recent data shows ownership inflation rose 2% in August. Since August 2019, the costs — including gas, repairs and maintenance, parking, insurance and licensing costs — have risen 43%.
Is now a good time to buy a car?
If you anticipate needing a new car in the next 12 months or so, and can afford to buy now, it may be a good idea to do so. Although car prices are higher now than they were five years ago, in the past month they’ve inched up — not down. And, if car manufacturers begin to pass the cost of tariffs on, car prices may climb higher.
“While we haven't seen a significant increase in new vehicle prices due to tariffs, the possibility still hangs over shoppers already stretched by affordability challenges. Interest rates for both new and used vehicles remain above historic norms, so a modest Fed rate cut won’t dramatically slash monthly payments for consumers — but it does boost overall buyer sentiment,” says Jessica Caldwell, Edmunds’ head of insights.
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 brands have already implemented tariff-related price increases, while others have not. Also, previous-year models may be a better deal than new models coming out.
- Look at auto manufacturer websites for 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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