It’s a question many people are asking: When will car prices drop? Since the pandemic began, both new and used vehicles have gotten more expensive. If you're planning to buy a car, understanding what affects car prices can help you choose the right time.
The good news is that overall car prices are no longer rising as quickly as they were. Supply chains are improving, and more cars are reaching dealerships. This has started to put downward pressure on prices, especially for new cars.
New car prices remain high, but incentives like cash-back offers and low-interest loans are becoming more common. In early 2025, analysts reported that new vehicle prices have dropped by about 2% from their peak in 2023. This change is being driven by better inventory levels and consumer resistance to high retail prices.
The car market today is in transition. During the last few years, shortages and high demand pushed prices up. Now, things are shifting. Dealers are offering more discounts, especially on vehicles that are slow to sell. As more inventory becomes available, the market will continue to stabilize.
Used car prices are still high compared to pre-pandemic levels. A big reason is the shortage of vehicles from the 2020–2022 period when fewer cars were built. This led to a tight used car market. Many buyers are competing for the same limited supply of used vehicles, keeping prices elevated.
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Rising auto loan rates have made buying any car more expensive. In early 2025, the average rate for a new car loan was over 7%, while used car loans averaged nearly 12%. For buyers with lower credit scores, the cost of borrowing is even higher. That’s why comparing rates and checking your credit report is so important before you finance.
The Federal Reserve raised interest rates several times between 2022 and 2024 to fight inflation. That led to higher rates for car loans too. However, recent signals suggest rate cuts are coming. If the Fed lowers rates in late 2025, as expected, buyers could see better financing terms in the near future.
According to Kelley Blue Book, the auto market has already started to see lower interest rates for highly qualified buyers, and some automakers are rolling out special financing deals.
People are pushing back against high official MSRPs and high monthly payments. This consumer pushback is leading manufacturers to rethink pricing and offer better deals. Some brands are lowering prices on certain models or providing bigger incentives to attract car buyers.
Ongoing tariffs—including those implemented under President Trump—have affected car prices in multiple ways. Cox Automotive reports that new automotive-specific tariffs of around 25% on imported vehicles and parts have disrupted supply chains and raised costs for both domestic and foreign automakers (Cox Automotive, S&P Global, Reuters). A study by Anderson Economic Group claimed the added cost to consumers could exceed $30 billion in the first year, with projected price increases of $2,500 to $5,000 for budget cars and potentially more than $20,000 for luxury models (Reuters). Industry analysts warn these tariffs may cut order for new cars by 15–20%, slow production, and give automakers an excuse to pass costs directly to buyers.
If rate cuts happen later in 2025, as many experts believe, it will make loans more affordable. That will allow more people to finance cars at lower interest rates. However, those savings might take a few months to reach buyers, depending on lender response.
Now we've seen two competing narratives; in one, tariffs will cause economic shifts that lead to higher prices. More buyers competing for new vehicles will mean vehicle prices will go up. In the other story, vehicle listings are finally starting to reflect a return to pre-pandemic car prices; in a welcome surprise to the market, better access to chips means manufacturers find they can increase incentives and start lowering MSRPs.
Which narrative is true? The answer is probably both, and economic shifts are complex and hard to predict. On the one hand, tariffs will make import prices go up, but new car prices for domestic cars could very well drop. Combine that with improvements to people's personal finance habits and changes to interest rates, and the consensus leans toward better car prices in the coming year.
The sharp increase in car prices came from several sources:
One reason car prices continue to improve is better car inventory. Manufacturers are now producing more cars, and dealer lots are starting to fill up. As choices increase, buyers have more power to negotiate.
Prices remain high for certain vehicles—especially large trucks and SUVs—but some segments, like sedans and EVs, are seeing better deals. Shopping around and being flexible about model and features can save you thousands.
As of mid-2025:
Understanding the cost of owning a car—not just buying it—is also key. Insurance, fuel, and maintenance add up.
Some vehicles are more likely to be discounted than others. Electric and hybrid cars, base models, and cars with high inventory are more likely to carry rebates. High-demand cars and trucks will be slower to drop in price.
Wondering if you should buy a car now or wait? Here are some tips:
This fall, prices may continue to fall slowly, especially if supply stays strong and we avoid elevated interest rates. Be ready to act when you see a good deal; but don’t rush. Car shoppers who do their homework will get the most value.
Many manufacturers are increasing production of electric vehicles. As supply improves and technology gets cheaper, EV prices are expected to drop faster than gas models. This shift also reflects changing consumer preferences. According to the International Energy Agency website, electric vehicle sales are expected to rise sharply through 2025, which could drive prices down further due to increased competition and production scale.
Expect prices to continue dropping gradually. Don’t expect a big crash, but steady improvements are likely as the economy stabilizes and supply chains fully recover.
Here are some useful tools and links:
Car shopping is a big financial step. If you’re not sure how a new purchase fits your budget, talk to a counselor at Credit.org. Our nonprofit credit counseling and debt help services can guide you toward the best choice. Whether you’re reviewing a loan offer or trying to improve your credit before buying, we’re here to help.
