Why Car Prices Are Increasing — And How You Can Save

If you think car buying has gotten crazy expensive, you’re not imagining things. At the close of 2024, Cox Automotive reported that the average new car costs $48,724 — up 2.3% since the start of the year, with no signs of slowing.

Of course, that price is an average — some cars cost much more, and some cost significantly less. Savvy car buyers can prioritize economy models to save money. But 2025 is also a landmark year for car prices because it is the first in which there are no vehicles — not even economy cars — with a starting price under $20,000.

So what’s the reason car prices are increasing 2025, how will policies impact prices and how can you save money if you need a new set of wheels? We’ll take a look below, but fasten your seat belt first.

What’s Causing Car Prices to Increase in 2025?

To understand the state of the new car market, I spoke with Michael Douglas, Head of Dealer Operations & Credit at Chase Auto. According to Douglas, there are several factors affecting new car prices — and it’s not just inflation and supply chain shortages.

“Over the last year, car prices have risen due to supply chain disruptions, increased demand, rising material costs, inflation, the shift to electric vehicles, and regulatory changes,” Douglas told me. “These factors have led to production delays, reduced inventory, and higher manufacturing costs.”

Douglas believes supply chains may stabilize this year, but that doesn’t mean car prices will stop climbing.

“Ongoing technological advancements, particularly in electric vehicles, and economic conditions like inflation will continue to influence car prices,” Douglas explained. “Additionally, consumer preferences for sustainable and advanced vehicles, and potential regulatory changes, could further impact pricing dynamics.”

Another potential factor is tariffs on imported cars and imported car parts. Many vehicles from American brands aren’t manufactured in the United States, and many vehicles that are made here still rely on imported parts. President Donald Trump has proposed 25% tariffs on imports from Mexico and Canada and 10% tariffs on goods from China. If those come to fruition, then cars could cost more.

How Are High Car Prices Impacting Auto Loans?

Many consumers are applying for longer auto loan terms in direct response to the fact that car prices are increasing, as that keeps monthly payments down. The problem? That makes cars even more expensive, because that’s additional time borrowers are paying interest.

“Increased car prices have led to longer loan terms, often extending to 72 or 84 months,” Douglas told me. “While this approach reduces immediate financial strain, it results in higher total interest costs over the life of the loan and increases the risk of negative equity, where the car’s value depreciates faster than the loan is paid off. This situation can complicate future trade-ins, as borrowers may still owe more than the vehicle’s worth, potentially leading to greater financial burdens in the long run.”

Opting for a longer loan term may seem attractive when you consider your monthly budget. However, you should consider pulling some other levers to lower costs before opting for a lengthy car loan.

How to Save Money on a Car in 2025

As the average cost of a new car flirts with $50,000 (or even higher), buyers will have to get creative to keep costs down. Here are some ways you can save money on a car in 2025:

Consider Certified Pre-Owned, If Not Used

The best way to save money on a car is to buy a used one. That’s a no-brainer. But used cars can be complicated. Older, high-mileage cars are the cheapest, but they’re also more likely to break down and require costly repairs. A new car, on the other hand, is usually covered by a warranty for several years, meaning no unexpected repair costs.

But a certified pre-owned (CPO) vehicle is a nice in-between. CPO vehicles, purchased through a dealership, are cheaper than a new car because, as the name suggests, they already had another owner. However, the CPO label typically means the vehicle has low mileage, has passed a thorough inspection, and comes with some level of warranty as an assurance.

Buy at the Right Time

Tax season usually means major sales incentives at car dealerships, well timed to your tax refund. And conventional wisdom also says that salespeople will be more likely to offer a better deal when they’re desperate to hit their numbers at the end of the month, quarter or year. December is a great time to buy a car, in particular.

But there’s another time to consider buying, according to Douglas. “At the end of a model year.” (Note: This is different from the end of a calendar year.) For instance, once an automaker is starting to sell the 2026 version of a vehicle, they’ll want to get rid of the 2025 models as quickly as possible, meaning they’ll offer steep discounts.

Do Your Due Diligence

A little bit of research can go a long way. Take the time to compare models to find the best value, and go with the vehicle that checks all your boxes but at the lowest price. Don’t forget to factor in manufacturer incentives, special financing offers and rebates. Use this car comparison spreadsheet to get started.

“Focus on the total cost of ownership, including fuel efficiency and maintenance,” Douglas added.

For instance, you can estimate the number of miles you drive in a given month, look at current gas prices, and calculate how much each car you’re considering will cost you in gas based on your driving habits and each vehicle’s stated fuel economy.

Also take the time to check your credit score. You’ll get the best interest rates on a car loan if your credit score is 800 or higher. If your score is low — or you’re just a few points below a threshold that could get you a lower rate — spend three to six months trying to boost your score by paying down your debts and decreasing your credit utilization.

You can also research negotiation tactics for buying a car. Going into the dealership feeling confident about how you’ll steer the conversation can make all the difference. 

Timothy Moore is a Certified Financial Education Instructor® and a personal finance writer and editor. He’s covered autos for 12 years and finance for the last seven years. Find his work on sites such as USA Today, Business Insider, LendingTree, LendEDU, Forbes, and Time Magazine.