As anyone shopping for a car lately can tell you, the sticker shock is real whether you’re looking for a new or used vehicle. Prices for new cars have risen about 21% from a five-year low in June 2020, when pandemic shutdowns seriously slashed demand.
Inflation is driving this uptick, increasing the cost of producing cars and affecting the interest rates available to finance them. Tariffs add to automakers’ costs, and tight inventory drives demand upward.
Learn why costs have increased significantly and what you can do to budget and shop smarter to make confident, well-timed car-buying decisions.
CarInsurance.com Insights
- New car prices reached an average of $48,907, down from an all-time high but still 21% higher than in 2019.
- In 2025, used car prices averaged $25,512, down 10% from pandemic-era highs.
- Some factors affecting car prices include inflation, auto tariffs, tight inventory and increased production costs.
The big picture: How car prices changed before 2025
Overall, new car prices are about 21% higher today than in 2019, according to the Consumer Price Index for new vehicles.
The average sales price of a new car as of June 2025 was $48,907, 1.2% higher than last year, per data from Cox Automotive. However, that’s still lower than the record high average sales price of $49,958 in December 2022.
Used cars sell for an average of $25,512 per Cox Automotive, up 1% from last year. However, it’s down more than 10% from the average used car price of $28,205 in 2021. In 2019, the average used car price was just $20,600, according to Edmunds.
Why car prices matter when choosing coverage
Higher vehicle values directly affect car insurance costs. Keep your costs under control by choosing a lower-priced vehicle.
Key factors driving new car prices in 2025
Although off slightly from record highs, new car prices are still elevated thanks to a perfect storm of factors pushing costs up.
“Prices have gone up and are staying up for a variety of reasons,” says Viraf Baliwalla, a licensed dealer, broker, and auto claim specialist with AutoMall Network. “The latest is tariff concerns. All manufacturers have put in price increases to support the tariffs,” he said, though they differ in how they allocate those increases.
The White House has issued several shifting tariff directives of up to 25% this year, affecting imports of parts and completed vehicles and potentially adding thousands to the sticker price.
Other factors driving the cost of new cars in 2025 include:
- Higher production costs. Inflation impacted the cost of raw materials and labor, leading to higher production costs for auto manufacturers. Inflation can also affect a company’s overhead and other indirect costs, increasing price pressure.
- They cost more to finance. As inflation rose, the Federal Reserve raised interest rates to keep the economy in check. Higher interest rates on auto loans affect the overall cost. However, they can also temper demand, putting downward pressure on prices. The Fed lowered interest rates in December 2024 but has held steady since.
- Inventory is tight. Although the supply-chain issues of the pandemic era are largely under control, vehicle inventory is still a bit tight, especially as automakers try to hedge their bets regarding tariffs.
- Consumers want bigger, more expensive models. The trend toward large and costly vehicles continues, with most buyers choosing pickups and SUVs over sedans. Nationally, the most popular vehicles are full-size pickups (Chevy Silverado, Ford F-Series) and SUVs (Honda CR-V, Toyota RAV4), according to Edmunds.
- The EV transition is expensive, too. As automakers build new plants and infrastructure to support the production of electric vehicles, those costs translate into higher sticker prices. Additionally, the federal EV tax credit will phase out after Sept. 30, 2025.
Key factors behind used car price trends in 2025
As the price tag on new cars nears $50,000, consumers are turning to used vehicles to keep things affordable. That hikes demand, driving prices up. Auto financing rates also drive consumers toward the used car market, where buyers are more likely to be able to pay cash or finance a lesser amount than they could with new cars.
Amid the consumer competition for affordable used cars are rental car companies, whose buying and selling decisions influence the used car market.
For instance, when vehicle inventory was incredibly tight during the pandemic-era chip shortage, fleets competed with consumers for new cars. They delayed the sale of their fleet vehicles, tightening the used market. Even as the chip shortage is mostly over, reduced fleet turnover at rental car companies and elevated demand from budget-minded drivers keep used car prices high.
The impact of supply chain recovery on the price of vehicles
Microchips and semiconductors are integral to today’s vehicles, helping power and control various systems and electronics, including engines, infotainment and safety. The COVID-19 crisis and resulting manufacturing and supply chain challenges seriously curtailed automakers’ ability to import these crucial components from 2020 to 2023.
Now that the chip market has mostly recovered, inventory has rebounded, if slowly. However, the transition toward electric vehicles, plus an increased push for domestic sourcing and processing of the key materials needed for their production, could still create ongoing challenges related to microchips and semiconductors.
How inflation and interest rates shape car affordability
Both inflation and interest rates can affect your ability to afford a car. Prices on almost everything rose 2.7% over the last year, according to Consumer Price Index data from the Bureau of Labor Statistics. When you’re paying more for groceries and utilities, that leaves less room in the budget for a new car.
It also means you’ll need to budget more for the total cost of ownership – not only the vehicle’s purchase price, but also the financing. The average auto loan rate is 9.9%, while today’s average monthly car payment is $757, down $5 from a record high of $762 in December 2022.
Higher car prices also mean higher insurance rates, as insurers raise premiums to cover the cost to repair or replace today’s vehicles.
How does car type and make influence 2025 pricing?
While the overall price increase is 1.2% on average, inflation varies widely from brand to brand and vehicle to vehicle.
Nationally, the segments with the most significant price hikes over the last year include:
- Full-size cars: 33%
- High-end luxury cars: 12.5%
- Sports cars: 10.8%
- Luxury subcompact SUVs: 3.5%
The segments that saw prices drop the most include:
- Vans: -4.5%
- Luxury cars: -3.0%
- Compact SUVs: -0.9%
- Full-size pickups: -0.7%
And while most automakers raised prices over the last year, a handful lowered prices, according to Kelley Blue Book. Below are the year-over-year price decreases and average sales price for four major automotive manufacturers:
- Ford: -1.9% to $55,026
- Hyundai: -0.1% to $37,497
- Stellantis: -5.2% to $53,599
- Tesla: -5.7% to $54,989
Also, note that automotive brands offered an average of 6.9% in incentives to attract customers and temper the effect of soaring new-vehicle prices.
Regional differences in new and used car prices
Just as prices vary from dealer to dealer, they also differ depending on where you live. Registration fees and sales tax can boost the price of a new car, such as in some areas in Florida, where sales tax tops 6% and a discretionary surtax can tack on an additional 1.5%. It can also keep your costs low, such as in Oregon, which has no sales tax on cars and caps document processing fees at $250.
The state with the highest average used vehicle price is Alaska, with prices more than $7,600 above average. The most affordable state to buy a used car is Indiana, with prices about 11% below average, according to a report by iseecars.com that analyzed more than 8 million car sales.
Transportation and delivery fees add to the cost of buying a car, as it costs far more to ship a vehicle to Hawaii or Alaska than elsewhere in the U.S.
What does this mean for car insurance costs?
Car prices directly affect insurance costs, as higher values come with more expensive premiums. Car insurance companies base their premiums in part on how much it would cost to repair or replace your vehicle after a covered claim.
As with liability insurance, inflation affects comprehensive and collision coverage, resulting in increased premiums.
Tips for buying a car in 2025
Keep your costs under control by shopping for interest rates and loan terms on vehicle financing. You may save money by finding a loan outside of dealership captive financing; you may find lower rates at online lenders or credit unions, but you’ll need to compare fees and loan terms.
When you’ve decided on a car to purchase, negotiate the add-ons and fees presented by the dealer, such as extended warranties or dealer-added fees. You can also negotiate the sticker price and trade-in amount.
Here are a few other tips for buying a car:
- Shop interest rates and loan terms
- Consider the total cost of ownership
- Negotiate add-ons and dealer fees
- Time your purchase seasonally
Lastly, timing your purchase can help you save more money. The end of the month, end of the quarter, and end of the year are all good times to negotiate a deal and take advantage of dealer incentives, as dealerships aim to hit their sales goals.
Frequently asked questions
Why are new cars so expensive in 2025?
It’s due to inflation, auto tariffs, tight inventory, and consumer preference for bigger and more expensive vehicles.
Are used car prices dropping?
Used car prices are down from their pandemic-era peaks, although still markedly above pre-pandemic levels. More inventory, fewer supply-chain hiccups, and increased auto loan rates have cooled demand, forcing prices lower.
Will car prices go down this year?
While car prices won’t drop much, if at all, this year, rest comfortably knowing that they aren’t rising much, either. Prices should remain relatively stable through 2025.
How can I save money on a car purchase in 2025?
The best way to save money on a car is to shop around for a reasonable purchase price and a good auto loan rate. You can also keep the savings by shopping for cheaper car insurance, which can further reduce your total cost of ownership.
How does car price affect my insurance premium?
Rising car prices mean higher car insurance premiums because insurance companies must be able to cover the cost to repair or replace these more expensive vehicles. Luxury and sports cars not only cost more to purchase, but they also cost more to insure.
Resources & Methodology
Sources
- Cox Automotive. “Kelley Blue Book report: New-vehicle costs rise in June, outpacing transaction prices as sales slow, incentives tick up.” Accessed July 2025.
- Edmunds. “Used vehicle report.” Accessed July 2025.
- Federal Reserve Bank of St. Louis. “Consumer Price Index for all urban consumers: New vehicles in U.S. city average.” Accessed July 2025.
- J.D. Power. “Why is there a global chip shortage for cars?” Accessed July 2025.
- Kelley Blue Book. “Average used car price now over $28,000.” Accessed July 2025.
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