In an intensifying global trade war, people who are hurrying to buy a car to prevent price rises may encounter an unforeseen speed bump: trouble obtaining an inexpensive auto loan.
President Donald Trump declared 25% tariffs on imported automobiles and some auto parts on Wednesday. It was the most recent in a series of levies that the White House claims are an effort to promote more domestic production and that are either already in place or set to begin early next month.
According to iSeeCars, the list price of some popular cars that are now not built domestically might increase by about $6,000 to $16,000 if the 25% levy is fully passed on to consumers.
Moving up a purchase they were already going to make while resisting the temptation to make a last-minute purchase is one strategy for consumers who are concerned that tariffs would raise the cost of goods.
Naturally, most people find it difficult to fit a big purchase like a car into their budget in a timely manner. The availability and cost of auto loans are other factors to take into account, which may be simple to ignore in the whirlwind of tariff news, in addition to the car’s actual price.
A perfect credit score is becoming more and more necessary to obtain a loan for the purchase of an automobile. According to the credit-reporting firm Experian, nearly half of auto loans in the fourth quarter were granted to applicants with “super prime” scores of at least 781 on a scale of 300 to 850 (EXPGF).
According to VantageScore, Americans’ average credit score decreased from 702 the previous month to 701 in February. According to VantageScore, a prime score ranges from 661 to 780.
Lenders may be paying close attention to which applicants have the highest likelihood of repaying their loans at a time when auto loan delinquencies have spiked to levels not seen since 2010.
According to the auto-buying website Edmunds, the average monthly payment for a new car is currently around $750, and the average car price is close to $50,000. As a result, financing is essential for everyone but the wealthiest car buyers.
However, a growing percentage of customers express skepticism about their capacity to obtain a vehicle loan.
According to a study conducted by the Federal Reserve Bank of New York in February, one-third of respondents stated that they anticipate being denied if they apply for a car loan in the upcoming year. In the more than ten years that the New York Fed has been interviewing people about their expectations and experiences when applying for credit, it is a record high.
According to the New York Fed, lenders originated $175.1 billion in auto loans overall last quarter, compared to $184.2 billion the previous quarter.
According to Kimberly Palmer, a personal financial specialist at NerdWallet, “obtaining an auto loan can be a daunting process even in the best of times, and adding in the complications of tariffs and a tightening credit market makes it even harder.”
Despite the Fed’s rate reduction, which were intended to lower borrowing costs for consumers, buyers must contend with high interest rates in addition to the high cost of cars.
According to the Federal Reserve, banks charged an average of 7.82% for a five-year loan on a new car in November. For lenders that included the finance arms of dealers, it was marginally lower, at 6%.
According to Experian, the average amount financed each loan was over $41,500, which was about $1,000 more than it was at the same time in 2023.
How much of the new levy will be absorbed by manufacturers and how much would be paid by automobile customers is still unknown. Although the effects will differ from business to company, a note from J.P. Morgan analysts said that the tariffs might cost the car industry billions of dollars.
The memo stated that there is “no avoiding the pain” of decreased production and softer demand, even if automakers and parts suppliers cover the direct expenses.
Consumers are “already buckling under the pressure of near-record new vehicle average transaction prices and historically high interest rates,” according to analysts, if they pass the costs on. Tariffs on other goods, which some estimate may increase a household’s annual budget by $1,200 to $1,600, are another source of cost pressure for Americans.
Palmer advised prospective auto buyers not to hurry in despite the tariff backdrop. Customers should obtain a free copy of their credit report, compare rates, and look for any mistakes that might be lowering their credit score.
According to her, there isn’t a single way to get a car loan. It’s helpful to keep that in mind when folks might feel limited in their options. “You don’t have to use the financing option offered at the car dealership,” Palmer stated. “You can compare your options at your bank, credit union and online lenders to get competitive offers.”
