Key takeaways

• Financing beats sticker price: APRs, incentives, and loan terms are driving total cost more than vehicle price tags.
• Used prices are climbing again: Inventory is tight at lower price points, pushing more buyers toward new or certified pre-owned (CPO) options.
• Loan terms are stretching: Six- and seven-year loans are now common, lowering payments but increasing interest costs and risk.
• More buyers are holding longer: Over half of Americans are keeping cars longer to cut costs — shifting focus from monthly price to long-term value.
• Certified pre-owned are the middle ground: Late-model cars with warranty coverage are appealing, though financing can be tighter.
• Digital shopping expands options: Online tools are helping shoppers compare financing, warranty, and ownership costs — not just price.

The better car deal in 2025 isn’t about the cheapest sticker. With high interest rates and long loan terms, financing is now the deciding factor. New cars may come with higher prices, but they also offer lower APRs and steady incentives. Used cars — especially under $15,000 — are in short supply and often come with steeper borrowing costs. For many buyers, certified pre-owned vehicles) sits in the middle lane, offering warranty coverage with less risk.

A used car might look cheaper on paper. But thanks to higher interest rates and fewer dealer incentives, it may end up costing more than a new one over time. Today, the real value may come down to financing — not the number on the windshield.

Empower research shows the average monthly car payment is around $452, with nearly 30% of Americans saying it’s one of their biggest expenses. And that’s before adding in gas, insurance, and repairs. In August alone, people spent an average of $564 on car-related costs through the Empower Personal Dashboard™.

So what’s driving the decision to go new vs. used in today’s market? Let’s break it down. 

Price tags don’t tell the full story

Sticker prices are just the start. Used vehicle costs are rising faster than new ones — up 1% in August, compared to 0.3% for new. And while it’s still possible to snag a bargain, especially on older cars, financing often tells a different story.

• Average used car APR: 14.1%¹
• Average new car APR: 9.4%²

That gap can erase any upfront savings, especially when loans stretch out to six or seven years — now the most common terms for new buyers. Seven-year loans made up 22% of all new loans in Q2 2025, rising from 17.6% in the same period a year ago, while 36% of buyers opt for six-year loans. A longer long term can lower the overall monthly payment, but it means that a buyer is paying more in overall finance costs and increases the risk of negative equity – which is owing more than the car is worth.

What’s in stock?

Inventory has rebounded, but unevenly. In early September:

• New vehicle inventory: 2.76 million units (77 days’ supply)³
• Used vehicle inventory: 2.21 million units (43 days’ supply)⁴
• Used cars under $15,000: Just 29 days’ supply — the lowest since March⁵

That last stat is key. Affordable used cars are hard to find, which keeps prices high and competition stiff. At the same time, average new car prices hovered around $49,000 — but  incentives from dealers (averaging 7.2% off transaction prices in August) can narrow the cost gap.^6,7

Trade deals, tariffs — and what they mean for buyers

Tariff changes are working their way into the system. U.S. trade agreements now tack on costs for imported vehicles — 10% from the U.K., 15% from Europe, Japan, and South Korea, and 25% from Mexico and Canada. While some automakers initially absorbed those costs, some are expected to pass them along as 2026 models roll out — something to keep in mind for anyone eyeing next year’s inventory.^8,9

CPO: The middle lane

Certified pre-owned (CPO) vehicles offer a mix of value and peace of mind.¹⁰ They’re typically newer, come with warranties, and have been inspected — but they can also come with tighter financing and fewer promotions than new models. Still, for drivers who want warranty coverage without paying full price, CPOs can hit the sweet spot.

Holding longer, managing budgets

According to Empower research, 57% of Americans are holding onto their cars longer to manage their budgets — and leaning toward buying over leasing. That’s shifting the focus from monthly payments to long-term cost. Think: interest, insurance, maintenance, depreciation, and warranty.

If the plan is to keep a car for five years or more, financing terms and incentives become just as important as the price tag.

Pick the deal that fits the drive

• New: Good for buyers with strong credit looking for lower APRs, long warranties, and a stable long-term payment — even if the sticker price is higher.
• Used: Best for budget-conscious buyers willing to be flexible on trim and mileage — especially if a shorter loan term is doable.
• CPO: Ideal for those who want warranty coverage without going full-price, and who can find a promo APR or good selection.

Right now, the best move isn’t necessarily looking at “new or used.” It’s asking what kind of loan, incentive, and ownership plan makes the most sense for the road ahead.

FAQ

Is it cheaper to buy a new or used car right now?

It depends on how long the car will be kept and how it’s financed. New cars often come with lower APRs and stronger incentives, which can make them less expensive over time — even with a higher sticker price. Used cars are rising in cost and tend to have higher interest rates.

What’s the average car payment right now?

Empower research shows the average monthly car payment is about $452. Total car-related spending in August averaged $565.

Are long car loans a bad idea?

Not always, but there are trade-offs. Longer terms — six or seven years — reduce the monthly payment but increase total interest costs. They can also lead to negative equity if the car is sold or traded early.

Why are used cars getting more expensive again?

Inventory is tight, especially for vehicles under $15,000. With fewer affordable trade-ins available, demand is keeping prices elevated — particularly at the low end of the market.

What’s the benefit of certified pre-owned (CPO)?

CPO vehicles are newer used cars that come with a warranty and have been inspected by the manufacturer. They’re often a good balance between cost and reliability, though financing may be less flexible than with new models.

Is it harder to get approved for a car loan?

Yes — credit standards tightened in August, especially for certified pre-owned cars.12 A higher credit score and larger down payment can improve chances of qualifying for better rates.