Tariffs and car prices pose challenges for consumers

The Trump administration’s new 25 percent tariffs on imported cars and car parts, which went into effect on April 3, are throwing a wrench for potential car buyers. Those who have long waited for prices to come down now find themselves making the difficult decision to wait indefinitely or purchase quickly before tariffs kick in.

Consumers have been struggling with a costly auto market since the COVID-19 pandemic led to car shortages. These shortages are still haunting buyers five years down the line, particularly in the used car market. With new vehicle prices soaring, consumers have become partial to used vehicles, bringing up used prices almost on par with new ones.

After years of rapid increases, new vehicle prices have shown signs of leveling out. February’s average new car price of $48,039 was only a 1.0 percent year-over-year increase from February 2024 and a 1.3 percent decrease from January, but it’s still close to a record-high price set in August 2019.

Tariffs will increase the price of vehicle ownership

One goal of the Trump administration’s tariffs is to bring back domestic manufacturing jobs, but high tariffs will make it more expensive for companies to import goods. While automakers may comply, they can’t bring back factories overnight or without expense.

In a March 5 press release, Edmunds’ head of insights Jessica Caldway said, “A one-month exemption offers a welcome reprieve, but…The reality is that a month is nowhere near enough time for automakers to relocate factories or reconfigure supply chains.”

It’s difficult to say how much tariffs will affect car prices, but the short-term impacts are clear:

• Higher purchase prices for imported vehicles: Roughly 44 percent of new vehicles sold domestically were imported from North America, Europe and Asia in 2024. Domestic tariffs, along with reciprocal tariffs from international trade partners, will dramatically raise the price of perennial favorites like Toyota and Honda.
• More expensive parts: During tariffs imposed by the first Trump administration in 2018, the price of auto parts increased by 2.3 percent. Currently it’s unclear how tariffs will be applied to domestically imported auto parts that enter multiple times before being installed on finished vehicles.
• Increased insurance costs: Repair costs will increase as the price of parts does. Wait times for repairs may lengthen, increasing demand for rental cars. These increases will be passed on to consumers in the form of higher premiums.

4 Ways car buyers are coping with tariffs and car prices

Since the announcements of tariffs, consumers have been weighing their options more carefully. It’s possible prices may level out or even come down after the initial chaos of disrupted supply chains stemming from these tariffs. Either way, consumers won’t be leaping into a purchase without doing some comparison shopping first and examining industry trends.

Affordability will become an even bigger hurdle as prices rise again. An affordability study from Edmunds showed that 73% of consumers in September 2024 reported delaying a car purchase because of elevated prices. More than half of those surveyed indicated they planned to work more hours or take on additional jobs to pay for their next vehicle.

Bankrate spoke with four consumers who are currently or have recently considered purchasing a car to see how they are navigating tariffs and car prices.

1. Deciding whether to repair or replace

Keeping up with car maintenance can help save a lot of money and help hold off the need to purchase a new vehicle.

Choosing whether to repair or replace isn’t always easy. Replacing is a big financial commitment, requiring a down payment, monthly car payment and higher insurance rates.

With looming tariffs, some consumers are opting for repair.

“My car is 12 years old, 110,000 miles. There was a point last year I thought I’d have to replace my car, but I’ve been able to hold off. The car market wasn’t great then, either.”

That was Kelly Michelle Barrett, a communications specialist from Virginia. Faced with soaring prices in the auto market, she decided to increase her budget for car repairs instead of buying.

“I have a maximum amount I’m willing to pay for repairs before I have to start looking again,” Barrett said. “Knowing tariffs were coming, I’ve raised that amount.”

Fewer than half of middle-class Americans have access to public transportation, according to a study by Santander. Out of those surveyed, 77% reported they depend on a vehicle to get to work, but keeping an older vehicle in working order can be expensive.

Takeaway

If you’re waiting to buy a new car, you can budget more effectively for repairs by estimating the average cost of car maintenance for your make and model. Following through on routine maintenance can delay big, expensive work on your vehicle and keep it running longer.

2. Building credit for better rates and terms

If your credit score is low, do what you can to bring it back up, including reviewing your budget and adopting healthier financial habits.

Kiley Thompson, a middle school teacher from Florida who relies on her truck to get to work, has been in the market for a used truck but has been discouraged by her options.

Her current vehicle is 11 years old with 100,000 miles when she bought it in 2019, but it was in good shape and cost $16,000. These days, she noticed a newer 2012 model with 197,000 miles and noticeable cosmetic damage costing $21,900.

“I’m looking every day for something, but it feels like I have to find something before the first of April if I want to save several thousands,” said Thompson. “The tariffs are definitely weighing on me. My credit is also not super great right now.”

Credit scores are a concern for many potential car buyers. While bad credit auto loans are one option, auto loan interest rates have been dropping for buyers with strong credit. Borrowers with better credit are more likely to be approved for longer terms with lower monthly payments, so it’s not just interest rates where your credit counts.

Takeaway

You can start repairing your credit by reviewing your budget, paying down debt and swapping out old financial habits for healthier ones. While you can build credit without going into debt, the right auto loan can be part of your credit recovery journey.

3. Buying new when the terms make sense

If buying a new car gives you monthly payments similar to that of a used car, it may be worth it to consider buying new.

Lindsay Wesley, an executive assistant in Georgia, recently helped her daughter, a senior in high school, shop for her first car and was shocked at how much prices have risen since she bought her last car three years ago.

“The cost of financing has changed so much that it’s almost not worth it to get a used car unless you know you are going to be able to pay it off quickly,” said Wesley. “Right now, I have some friends who got a better deal getting a new car because the interest made the payments lower or the same as a used car. Sure, you would be paying more in the end. But you would have a brand-new car.”

She’s not wrong. According to data from Experian, the average monthly payment on a new car loan in Q4 2024 was $742, while for used vehicles it was $525. Longer terms and dealer incentives, along with lower interest rates, can make buying new a tempting prospect.

Takeaway

Always weigh the pros and cons of buying a new car. Use a car loan calculator to ensure a new car fits into your budget. You will also need to compare the depreciation rate of new cars and the cost of higher insurance rates against lower maintenance costs to decide if a new car is a bargain for you.

4. Compromising may open doors

Prioritize which vehicle will help best meet your needs rather than focusing on the bells and whistles.

For some consumers, tariffs are pushing forward their decision to buy a vehicle, even if that means making some compromises.

Senior Bankrate writer Andrew Dehan and his family opted for a used vehicle with some issues that were covered under warranty. The upside was that he didn’t have to finance the purchase.

“We’re expecting a third kid in August, so a minivan was the preferable choice,” said Dehan. “We bought a minivan last month after over a year of planning for it. We knew tariffs were coming and decided to pull the trigger before they were enacted.”

Compromise will be important for many Americans who purchase another vehicle. Consumer preferences have been trending towards larger vehicles with higher MSRPs for decades. But in December 2024, Cox Automotive reported a significant shift away from pricier SUVs and pickups toward compact cars and smaller SUVs, citing affordability as a major factor.

Takeaway

To choose a car you’ll love, reflect on factors like your primary use for the vehicle, who will drive and ride in it, and how long you plan to keep it. Develop a checklist of non-negotiables and comparison shop rates to get a realistic sense of what’s possible with your budget. Compromise means getting what you need in a car, not just giving up some of the flash and glam.

Bottom line

A lot remains uncertain for both automakers and car buyers, but the fundamentals of good car buying still apply. Review your finances carefully, reduce what debt you can, and use prequalification and comparison shopping to your advantage. Once you have the facts, you can determine whether it’s best to commit to a new car payment now or squeeze a few more miles out of your current ride until the market settles down.