Auto Loan Rates Dip; Is Now the Time to Buy a New Vehicle

Auto Loan Interest Rates Dip in May 2025, but Tariffs Cloud the Outlook for Car Buyers

As May 2025 rolls on, Americans looking to purchase a new or used vehicle are navigating a mixed financial landscape: borrowing has become slightly more affordable, but new tariffs are threatening to push vehicle prices—and insurance costs—even higher.

Lower Auto Loan Rates Offer Some Relief

Auto loan interest rates have declined in recent months, offering a rare bit of good news for consumers. The average rate for a new car loan is now around 6.6%, down from highs seen in late 2023. Used car loan rates have also eased, falling to just under 11%. Analysts expect rates to continue trending downward through mid-2025, giving consumers a bit more breathing room on monthly payments.

Tariffs Trigger Price Increases Across the Industry

However, this relief is being overshadowed by a new round of tariffs implemented in early April. The U.S. has imposed a 25% tariff on imported cars and auto parts from several countries, including Mexico and Canada. The result is a sharp increase in the cost of producing and importing vehicles—especially those assembled or built with parts from abroad.

Industry estimates suggest the average price of a new vehicle could jump by more than $5,700, bringing the typical transaction price closer to $54,500. Automakers are already adjusting: some are raising sticker prices, others are cutting production or passing on new import fees directly to customers.

Several automakers have reacted swiftly. Ford is promoting employee pricing to soften the blow of price hikes on certain models. Stellantis has temporarily shut down two plants, resulting in hundreds of job cuts. Volkswagen has added a tariff surcharge to affected models. Meanwhile, Honda has announced a major profit hit and delayed plans for a new electric vehicle plant in Canada.

Auto Sales Showing Signs of Softening

New vehicle sales in the U.S. are starting to reflect consumer hesitation. After a solid December 2024, January sales fell by over 250,000 units. Forecasts for 2025 suggest total light vehicle sales will inch up only slightly compared to last year, signaling a slowdown in overall demand.

Analysts point to multiple contributing factors: higher vehicle prices, persistent inflation pressures, and economic uncertainty related to trade policy. For many buyers, even lower loan rates can’t fully offset the rising total cost of ownership.

Auto Insurance Premiums Also on the Rise

The tariffs are expected to have a ripple effect beyond just sticker prices. With the cost of parts and repairs rising, insurers are adjusting premiums upward as well. Some projections suggest car insurance costs could rise as much as 8% this year, further squeezing household budgets.

Looking Ahead

As the market adjusts to this new set of economic pressures, both consumers and carmakers are bracing for a slower-paced year. While lower financing rates may help keep some buyers in the market, the broader impact of tariffs and rising vehicle costs is likely to limit overall growth in auto sales. The next few months will test the resilience of both the industry and the American consumer.

Already Have a Vehicle in Mind? Make Sure to Run a Vehicle History Report Before Buying Your New Vehicle!

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