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At the end of 2025, the average transaction price paid for a new vehicle hit an all-time high of $50,326, according to Cox Automotive's Kelley Blue Book. In January, the average price decreased only slightly to $49,191 .
A major factor driving the average new vehicle price has been who is buying cars and their vehicle choices. According to Cox Automotive, higher-income buyers have continued to favor larger vehicles, like SUVs and trucks, that cost more than other car types. Families with household incomes above $150,000 bought 43% of new vehicles sold in the U.S. last year, up from 30% in 2019. During the same time period, households with incomes below $75,000 purchased 26% of new vehicles, down from 37% .
How have tariffs affected car prices?
After tariffs were implemented in April 2025, vehicle prices remained relatively steady for most of that year. Automakers appeared to be absorbing tariff costs instead of passing them to consumers, with numerous carmakers attributing financial losses directly to tariffs. As 2026-model-year vehicles came out, some carmakers linked higher sticker prices, at least in part, to tariffs. But these price increases have been model-dependent without the broad impact some auto industry experts originally predicted.
On Feb. 20, the Supreme Court ruled that many of President Donald Trump's tariffs, specifically those imposed under the 1977 International Emergency Economic Powers Act (IEEPA), are illegal. However, this ruling won't have a major impact on existing auto-related tariffs. Duties on auto parts, steel, aluminum and copper remain in effect. Following the Supreme Court ruling, Trump announced a new global tariff, but a White House fact sheet clarified that the global levy will not apply to passenger vehicles, certain trucks and some auto parts .
What about used car prices?
Used car prices reached record levels during the pandemic and have remained elevated. In January, the average listing price for a used vehicle was $25,533, according to Cox Automotive .
Higher used car prices have been driven less by tariffs and more by tight inventory. Many consumers who are unable to qualify for a high-balance new car loan, or make high monthly payments, have turned to purchasing a used vehicle thus reducing the supply.
The availability of used cars has also been affected by fewer lease returns and drivers holding on to cars longer. The good news is that used car inventory is expected to improve, as lease returns rebound in 2026.
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.
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
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. Today’s average new car price is approximately $11,000 higher than new car prices before Covid-19 .
Throughout last year, CPI reports showed very little variation in the new vehicle index, which increased in January by 0.1 percent. The used car and truck index fell 1.8 percent in January .
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. The good news is that auto loan interest rates have started to come down.
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. After a series of cuts in September, October and December 2025, the Fed held the rate steady at its January 2026 meeting.
The average car payment in the fourth quarter of 2025 was $772 for a new car and $570 for a used one according to Edmunds. Edmunds bases these averages on a down payment of $6,228 for a new car and $3,956 for a used car. The company also reported that a record high number of new-car buyers (20.3%) committed to a monthly payment of $1,000+ during the same time period last year .
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) .
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 was flat in January 2026.
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 high prices, recently declining auto loan interest rates may provide some payment relief. Moving into 2026, car prices are expected to remain stable, so delaying a purchase isn't likely to provide a significant cost benefit.
If you're someone who simply can't fit a high car payment into your budget 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.
If you do move forward with financing a car and interest rates continue to 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 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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- 1. Cox Automotive. Kelley Blue Book Report: New-Vehicle Prices Climb Higher in January; Automakers Cut Incentives to Help Protect Margins. Accessed Feb 23, 2026.
- 2. Cox Automotive. Industry Insights and 2026 Forecast Call. Accessed Jan 6, 2026.
- 3. The White House. Fact Sheet: President Donald J. Trump Imposes a Temporary Import Duty to Address Fundamental International Payment Problems. Accessed Feb 24, 2026.
- 4. Cox Automotive. Used‑Vehicle Inventory Tightens in January as Sales Momentum Remains Strong. Accessed Jan 30, 2026.
- 5. Federal Reserve Bank of St. Louis. Consumer Price Index for All Urban Consumers: New Vehicles in U.S. City Average. Accessed Aug 12, 2025.
- 6. Bureau of Labor Statistics Economic News Release. Consumer Price Index Summary. Accessed Feb 13, 2026.
- 7. Edmunds. More Than 1 in 5 New-Car Shoppers Committed to $1,000+ Monthly Payments in Q4 2025, According to Edmunds. Accessed Oct 3, 2025.
- 8. IRS.gov. One Big Beautiful Bill Act: Tax deductions for working Americans and seniors. Accessed Aug 15, 2025.
