Should You Buy a Car in 2025?

Auto Market Trends for 2025

There are several things that can influence what you’ll pay for a car. Here’s a summary of some of the most influential factors and what they look like for the upcoming year.

Used Car Prices

Used car prices skyrocketed in 2020 and 2021, primarily due to a shortage of new vehicles following supply chain shortages during the pandemic. After reaching a peak in February 2022, however, they have since started to come down—though prices remain much higher than pre-pandemic levels.

The Manheim Used Vehicle Value Index, which tracks the prices dealers pay for used cars at auction—and typically translates to retail prices in the short term—has shown a slight uptick in recent months. In other words, prices may increase a little in the first few months of the year.

Cox Automotive, which manages the index, forecasts that used car prices will increase by 2.4% by the end of the year.

New Car Prices

Pandemic-era supply chain issues also resulted in increasing prices for new vehicles. However, unlike the price tag for used cars, new car prices haven’t come down much since their September 2023 peak.

According to Kelley Blue Book, the average cost of a new vehicle is $48,623. Even with a flurry of incentives, that average is still $10,000 higher than pre-pandemic levels.

Still, experts say new cars are experiencing a buyer’s market, largely due to increasing supply. So, it’s possible to negotiate extra incentives—though not with all models. According to CarEdge, popular brands like Honda, Toyota, Hyundai, Kia and Subaru may have less wiggle room.

Learn more >> Is It Cheaper to Buy a New Car or a Used Car?

Auto Loan Interest Rates

The Federal Reserve took an aggressive approach to combating high inflation triggered by the pandemic, hiking its federal funds rate 11 times in 2022 and 2023. As a result, auto loan rates increased drastically.

According to Experian’s State of the Automotive Finance Market report for the third quarter of 2024, the average interest rate for new car loans was 6.61%, compared with 5.26% in 2022. For used cars, the average loan interest rate was 11.74%, up from 9.38% two years previously.

However, as the inflation rate has neared the federal agency’s target of 2%, the committee has slashed rates twice in the final months of 2024. Further rate cuts in 2025 are expected, but the trend is likely to slow.

Auto loan rates should follow suit, but it can take several months for lenders to adjust their rates downward.

Learn more >> What Is a Good Auto Loan Interest Rate?

Auto Loan Approvals

Auto loan rejection rates hit a record high in October 2024, according to data gathered by the Federal Reserve Bank of New York. Among those who applied for an auto loan, 11.4% were denied, the highest since 2013, when the bank started tracking the data.

Reasons for denial may include a low credit score, negative credit history information and a high debt-to-income ratio, among others. One factor that may be playing a role in the increase in rejections is the auto loan delinquency rate, which has surpassed pre-pandemic numbers.

Over the next 12 months, that means consumers may expect a higher rate of rejection for auto loan applications.

Tax Credits

If you’re thinking about buying an electric vehicle in 2025, you may still qualify for a tax credit on your purchase.

For new vehicles, you can get up to $7,500 in credits, while used vehicles can earn you up to $4,000. Your credit may be based on several factors, including the model, sales price, gross vehicle weight rating, your income and more.

Learn more >> Can You Still Get a Tax Credit for an Electric Car in 2025?

The Best Time to Buy a Car

If you have the luxury of waiting to buy your next vehicle, there are certain times of the year when you’re more likely to get a deal. Some of the best times to buy a car include:

• The end of the month: Dealerships typically set monthly quotas for their sales staff. If you can wait until the last few days of the month, you may get lucky and find a salesperson who’s motivated to work with you on a price to meet their quota. The end of the quarter can also be a good option as monthly and quarterly sales goals coincide.
• Certain holidays: Dealerships and manufacturers often offer rebates and financing deals on certain holidays. Popular times include Presidents Day, Memorial Day, July Fourth, Labor Day, Black Friday and New Year’s.
• New model years: Shortly before a dealership receives the latest iteration of a model, it works to clear out the latest model year to make room. This can result in a variety of incentives that can save you money. That said, there’s no universal time of year when new models are released, so you’ll need to do some research to determine the right timing.
• Earlier in the week: Weekends are typically busy for car dealerships because that’s when most workers have time to shop for a car. If you have some flexibility to go in on a weekday, less competition may give you an advantage in your negotiations. Monday and Tuesday tend to be slower in general.
• End of the calendar year: Dealerships often run end-of-year sales events that can result in significant savings. According to Edmunds, car buyers can enjoy the biggest average discount off the manufacturer’s suggested retail price in December, compared to any other month.

That said, some car purchases may be more urgent than others. If you’re dealing with a car that’s constantly breaking down and you need a more reliable form of transportation for work or school, the best time to buy a car is now.

How to Prepare to Buy a Car

The process of buying a car can take some time, especially if you want to maximize your savings. Here are some steps to get started:

1. Check your credit score. If you’re planning to finance your purchase, check your credit score to gauge your creditworthiness. If your credit needs some work and you don’t need another car urgently, consider taking steps to improve your score before you proceed.
2. Come up with a realistic budget. Take a look at your income, expenses and savings balance to determine how much you can reasonably afford to spend on a car, including the down payment and ongoing costs. In addition to the monthly loan payment, you’ll also want to consider insurance premiums, annual registration fees, fuel or electricity costs and ongoing maintenance and repairs.
3. Research makes and models. Take some time to think about the features you’re looking for in a car. Then, research different makes and models to get a better idea of which one would best suit your needs and preferences.
4. Consider new versus used. While the experience—not to mention the smell—of a new car is hard to pass up, make sure your expectations align with your budget. New car loans typically have lower interest rates, but they can still cost more over time due to higher sales prices. But if you can afford a higher payment and want a reliable vehicle, new may be a better choice than used.
5. Shop around for loans. If you’re in a hurry, you can rely on the dealer to arrange financing on your behalf. But while dealers typically send your credit application to multiple lenders, the interest rate you get may not be the best out there—in some cases, the higher rate may include compensation for the dealer. So, before you go to the dealership, shop around and compare auto loans from a handful of lenders to ensure you get the best deal available.
6. Head to the dealership. Once you’re preapproved for an auto loan, research local dealerships for the model you want and take note of the mileage, prices and other features. Then, head to one of the dealerships to negotiate a deal.
7. Finalize your loan. Whether you get your financing through the dealership or on your own, take steps to finalize the loan, so you can enjoy your new vehicle. Be sure to note when the first payment is due and set up automatic payments from your bank account.

The Bottom Line

If you’re thinking about buying a new car in 2024, understanding auto industry trends can help give you more context for what to expect. Regardless of when you decide to purchase a car, monitoring your credit regularly can give you the information you need to build and maintain a solid credit history, making it easier to save money on an auto loan.

In addition to comparing auto loans, it’s also a good idea to shop around and compare auto insurance coverage and costs to ensure you’re saving as much money as possible on your next car.