Long before President Trump’s new auto tariffs made headlines, car buyers had already been grappling with soaring prices. For four consecutive years, the costs of new and used vehicles have steadily increased. Now, with a 25% tariff on foreign-made vehicles taking effect, and the likelihood of car parts being included, drivers face even greater financial strain.

While the policy aims to boost domestic manufacturing, the immediate effect lands on consumers, many of whom are already near their financial limit when it comes to vehicle expenses.

Budget Strain Tightens for Everyday Drivers

A widely followed budget rule suggests that car payments should stay within 10% of take-home income. But for most Americans, even used car payments are brushing up against that line. For new vehicles, payments have already gone past it.

1. The average used car payment: $552/month
2. The average after-tax income per month: ~$5,440 (based on BEA data)
3. That means nearly 10% goes directly toward a vehicle payment

If tariffs increase prices as estimated, monthly payments could spike to $630. That change would bring the ratio up to 11.5% for used cars—and over 15% for new vehicles.

That leap is far from minor. It risks pricing many households out of the market, or pushing them to take on more debt than they can manage.

Uncertainty at the Dealership Is Shaping Buying Decisions

Freepik | standret | Car buyers face tough choices as dealers warn of rising prices due to tariffs.

At car lots across the country, buyers feel pressured. Dealers know what’s coming, and they’re not shy about it. Some are even texting potential customers, warning that prices will rise due to the tariffs.

Shoppers with aging cars are trying to make smart choices, but the lack of clarity on how long these tariffs will last makes decision-making harder. Will prices jump next week? Or stay flat for another month?

For some, that’s a gamble they aren’t willing to take. Others prefer to wait it out—though they might miss their chance to lock in a more affordable deal.

Why Used Cars Won’t Be the Safe Bet Anymore

As new car prices increase, many buyers naturally turn to used vehicles. But that market is tightening too—and quickly.

1. Only 13% of new cars cost under $30,000 in Q1 2025
2. That’s down from 37% just five years ago

This shift leaves many lower-budget buyers with fewer choices. Add in the ripple effects of the 2022 chip shortage—when fewer new cars were leased—and the used market feels the squeeze.

Lease returns that would normally replenish used inventories are now scarce, meaning fewer options and higher prices for used car shoppers.

How Lenders and Automakers Shift the Pressure

When cars get pricier, most shoppers look at the monthly cost—not the loan term. And lenders know this. To keep payments within reach, they often extend loan durations, which can stretch repayment terms up to seven years or more.

While the monthly number stays lower, the long-term financial burden quietly grows. That’s why many economists advise taking a closer look beyond just the monthly figure.

Automakers also rely on their captive lending arms—those in-house financing units—to manage the shock. By adjusting interest rates, they subtly transfer part of the tariff cost into financing fees.

During the last round of tariffs on steel and aluminum in 2018, those captive lenders quietly raised rates. The pattern is likely to repeat, say experts like finance professor Kristine Hankins from the University of Kentucky.

Who Feels It Most—and How the Industry Reacts

The growing imbalance between car costs and income hits lower and middle-income families the hardest. In January, buyers earning $200,000 or more made up 27% of new car purchases, up from 19% in 2021. That rise reflects the growing inaccessibility of new vehicles for average earners.

To deal with tariff-related costs, automakers are likely to spread increases across their entire vehicle lineups. As Jessica Caldwell of Edmunds explained, “Buyers of a $25,000 car can’t absorb the full impact of the tariff. That’s not sustainable.”

In contrast, someone purchasing a luxury SUV like an “Escalade” might be more capable of absorbing the extra cost. So while the impact won’t be evenly distributed, nearly all segments of the market will feel some effect.

Smart Car Financing Starts with Comparison

Freepik | seventyfour | Smart buyers compare car loan options to find better rates and avoid hidden costs.

With captive lenders expected to adjust their rates upward, shoppers benefit from comparing loan options before visiting a dealership. Banks and credit unions may offer better terms, especially during times of market uncertainty.

Looking beyond dealer financing can not only save money but also reveal hidden costs tied to the tariff hikes. A few percentage points on a loan rate could make a major difference over a multi-year repayment period.

Vehicle Affordability Has Entered a New Phase

Car buyers are now navigating a market where affordability is rapidly shifting. Rising tariffs add a new layer of complexity to an already expensive buying process. Supply shortages, interest rate hikes, and stretched loan terms further complicate the situation.

With the average monthly cost already near financial thresholds, and new tariffs pushing prices higher, households will need to make increasingly difficult choices. The balance between affordability, financing, and timing has never been more delicate.

So while many wait for answers, the window to lock in better deals may be closing fast. The smartest approach now is to stay informed, compare all financing options, and keep an eye on both prices and policy changes.

Tariffs are already reshaping the auto market. Stay ahead by comparing lenders, watching interest rates, and acting before the next price wave hits.