Are Car Prices Going Up or Down?
The average new car price recently surpassed $50,000, a record high. Here’s what to know about today's car market and buying a car.
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In September, the average transaction price paid for a new vehicle reached a record $50,080, according to Cox Automotive's Kelley Blue Book. It’s a 3.6% increase over the previous year and the largest annual gain since the spring of 2023.
Factors affecting the average new car price have included tariffs, loss of the federal EV tax credit and car buyer vehicle choices.
Many car buyers rushed to buy EVs — which carry a higher price tag — before the tax credit expired at the end of September. Also, consumers continue to favor trucks, large SUVs and luxury models that cost more than other car types.
How are tariffs affecting car prices?
Vehicle prices have remained relatively steady since tariffs were implemented in April. Automakers appeared to absorb tariff costs instead of passing them to consumers, with numerous carmakers attributing financial losses directly to tariffs.
Now, the cost of tariffs is beginning to trickle down to car buyers. As 2026-model-year vehicles roll out, sticker prices are higher. Also, some vehicle choices are changing, due to automakers eliminating certain models and reducing features to adjust to tariffs.
The tariffs affecting car manufacturers, and now consumers, include those on imported vehicles, foreign-made parts and production materials, such as steel, aluminum and copper.
Recently, President Trump extended a 3.5% tariff rebate — from two years to five — on imported parts of U.S.-made vehicles. The extension gives automakers more time to shift supply chains to the U.S. before losing the tariff offset.
What about used car prices?
Used car prices reached record levels during the pandemic and have remained there. In August, the average transaction price 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.
The increase in used car prices has been related less to tariffs and more to tight inventory caused by factors like fewer lease vehicles being returned and drivers keeping their cars longer.
But, as new car prices continue to rise, more buyers are turning to used cars — further tightening supply, increasing demand and keeping used car prices at historic highs.
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% over the same time period.
Today’s average new car price has now surpassed the previous all-time high, which was $49,958 in 2022, according to Kelley Blue Book. That’s approximately $11,000 higher than new car prices 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. However, since that time, new car loan rates have increased, while used car loan rates have decreased only slightly.
The average car payment in the third quarter of 2025 was $754 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 third 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.
Is now a good time to buy a car?
While it isn’t necessarily a good time to buy a new or used car, the cost of cars isn’t expected to decrease significantly anytime soon. If you know you will need a car in the next few years, and can afford to buy now, you might avoid even higher prices later.
On the positive side, car manufacturer incentives have increased in recent months to their highest level of 2025. Some EV manufacturers have introduced lower-priced models or purchase credits to compensate for the loss of the EV tax credit.
Also, if you move forward with financing a car and interest rates fall, 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 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.