04/03/2025

Trump's tariffs boost new-car payments when families are already strapped

Nearly every household already has one or two vehicles, presenting the choice of keeping the current car or getting a new, more expensive one. Image (c) ConsumerAffairs

The pandemic had already sent car prices sky high

James R. Hood, Founder and Editor

• Apr 3, 2025

You can argue about the effects of President Trump's tariffs on the economy but one thing is pretty certain: car payments will be heading for the stars, probably adding $90 to $180 a month to car payments that are already at their highest point ever.

The Detroit Free Press turned to Jonathan Smoke, chief economist for Cox Automotive, who ran some numbers. It went something like this: Assume a 72-month new car loan using an average rate of 9.6%, and assume the car buyer is taking out a loan for $43,000 — which was the average new car loan balance in February, the latest data available.

Pre-tariff, that borrower would be looking at a $788 month new car payment — already more than $100 above the $656 a month that consumers handed over on average for new car payments just three years ago.

Of course, no one really knows how much prices will go up and the results will vary from one manufacturer to another and one model to another. But just fror argument's sake, let's say prices will go up by $5,000 to $10,000 for a new car or truck.

Smoke noted that adding $5,000 to the price could translate into an average car loan balance of $48,000 — which would drive the average monthly payment to $880 or an increase of $92 a month.

Adding $10,000 to the price tag would drive up the average new car loan balance to $53,000 — sending the average monthly payment to $971 or an increase of $183 a month, he said, according to the Free Press.

Buy, sell or sit tight?

So, what's a consumer to do? Nearly every household already has one or two vehicles, presenting the choice of keeping the current car or getting a new one.

We talked to one consumer in Southern California who has been driving his 2017 Volkswagen since it was new. He had been planning to get a new VW Tiguan in a few months but is rethinking that plan.

"My old car runs fine and doesn't need any work but it doesn't have all the latest safety stuff and probably needs a set of tires, so I had thought it was time to trade up," he said. "But now I'm not so sure. Why should I get rid of a car that's paid for and runs fine for something that has a few bells and whistles with an $800 a month car payment."

That calculation, or something similar, has to be a common one these days.

"A set of tires and an oil change might set me back a few hundred but taking on a seven-year loan for a four-banger everyday crossover? I don't think so," he said.

Prices were already high

It's not like prices weren't high before the tariffs. Car prices jumped dramatically after the pandemic and have continued climbing over the last few years. The average monthly car payment was $764 earlier this year, according to TransUnion, up 35% in six years.

Consumers like their cars and like trading up. But aside from electric vehicles, there's really nothing much new under the sun when it comes to cars. Today's small SUV is substantially the same as one that's four or five years old and that is probably just about paid for.

From a dollars and cents standpoint, there's not much that's driving consumers to head over to the nearest car dealer's lot. Ford's employee pricing for all is attractive but even with that discount, a new car is a big obligation to take on in uncertain economic times. Fuel economy hasn't jumped that much and nobody seems to like the digital dashboards automakers swooned over a few years ago.

All of this comes at a time when many families are already paying more than a third of their household budget on essentials. That doesn't leave much room for a new car payment.

Perhaps the brightest part of the picture is that a lightly used, four- or five-year-old car or truck should be worth more today that it was last week, which could take some of the sting out of the premium you're likely to pay for a new replacement.

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James R. HoodFounder and Editor

ConsumerAffairs' founder and former editor, Jim Hood formerly headed Associated Press Broadcast News, directing coverage of major news events worldwide. He also served as Senior Vice President of United Press International and was the founder and editor of Zapnews, a newswire service for radio and television. Write to him at jhood@consumeraffairs.com

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