Power, the average new vehicle loan interest rate was 5.19% in January 2025, up from 4.33% in January 2022.
The content discusses the factors contributing to the high prices of new cars, including consumer demand following the Covid-19 pandemic, inflation, advanced technology features, supply chain disruptions, and semiconductor chip shortages. It also mentions the impact of tariffs imposed by the Trump administration on car prices and the potential effects of tariffs on steel, aluminum, and electric vehicles. Additionally, it touches on the increase in auto loan interest rates, leading to higher payments for car buyers. In January, the average new car payment was projected to reach $734. While presidents do not have direct control over interest rates, their policies can impact them, influencing the Federal Reserve’s decisions. Typically, when prices rise, the federal funds rate is increased to curb economic activity and reduce inflation, leading to changes in auto loan rates. The movement of the federal funds rate since 2021 is depicted in the chart below.
Regarding used car prices, there has been a decrease in January 2025, with the average listing price dropping to $25,128. This decline follows a trend of steadily decreasing prices throughout 2024. Despite lower prices, the availability of used cars has been limited due to fewer off-lease vehicles being returned and owners holding onto their cars for longer periods.
If new car prices continue to rise, consumers may turn to used cars as seen during the pandemic, potentially resulting in a shortage of inventory and subsequent price hikes in the used car market, sometimes surpassing new car prices.
In addition to the upfront cost of vehicles, the BW Vehicle Ownership Costs Index highlights other financial challenges for consumers. The index, based on inflation and spending data from the BLS, shows that car ownership costs have increased by 41% since January 2020, including expenses such as gas, repairs, maintenance, parking, insurance, and licensing fees.
For those considering purchasing a car, it may be advantageous to do so sooner rather than later. While current car prices, loan interest rates, and ownership costs are higher compared to five years ago, they could potentially rise even further in the future. Taking advantage of the current inventory availability could result in cost savings.
Cox Automotive Chief Economist Jonathan Smoke suggests that lower auto loan rates are less likely in the future, emphasizing the importance of buying sooner rather than later, considering potential tariff risks. To minimize costs before making a purchase, it is recommended to consult online pricing guides and use auto loan calculators to determine the most suitable loan terms for your budget. following sentence: “The cat slept peacefully on the windowsill.”
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