U.S. consumers slowed down on auto debt in the first quarter of 2025 as car loan balances fell by $13 billion to $1.64 trillion, marking only the second quarterly decline since 2011.¹

Higher sticker prices and loan rates haven’t stopped Americans from loving their cars. Auto loan debt has increased 20% overall since 2020 and is the second largest category of consumer debt behind mortgages.²

The first quarter decline in auto debt was coupled with some other promising news, a  “leveling off” of auto loan delinquencies that had risen in 2024, according to the latest data from the Federal Reserve Bank of New York.³

While the auto loan market shows signs of steadiness, affordability continues to be a challenge for some car shoppers. There’s also considerable uncertainty over how tariffs might impact both prices and inventories in the months ahead.⁴

Read more: Lease vs. buy a car: Which is right for you?

Car prices up 

The average new vehicle listing price at the end of April was $48,656, up 2.8% from a year earlier, according to Cox Automotive.⁵

At the same time, inventories are not being replenished at the same rate of sales. New-vehicle inventory dropped to 2.49 million units at the start of May, about 66 days of supply, compared to 2.78 million units, or 80 days of supply, a year ago.⁶

Used car sticker prices were $25,547 at the end of April 2025, roughly the same as a year ago. But inventories were slightly lower, with about 43 days of supply at the end of April compared to nearly 48 days of supply a year ago.⁷

Loans and incentives 

Empower research reveals that nearly 30% of drivers say their car payment is one of their biggest expenses.

Auto loans continue to grow in size. New car shoppers financed an average of $41,473 in the first quarter of 2025, compared to $40,427 in the first quarter of 2024. The average annual loan percentage rate (APR) on a new vehicle was 7.1%, roughly the same as a year ago.⁸

Car buyers seem to have as many financing options as homebuyers. In past decades, car loans averaged 3 years to 5 years in length, but more shoppers have been shifting to seven-year loans to keep monthly payments low in the higher interest rate environment.⁹

Edmunds found that 84-month loans hit an all-time high in the first quarter of 2025, making up 19.8% of new-vehicle financing. Such loans made up 13% of financing in the first quarter 2019.¹⁰

Nearly two-thirds of new car loans have five-year or six-year terms. But there’s also been an uptick in shorter-term loans, which offer lower interest rates and other incentives for well-qualified buyers. About 10% of new-car buyers had loans of four years or less in the first quarter of 2025, up from 7% in 2019.¹¹

Some in Washington want to offer more incentives for auto loan borrowers. A comprehensive tax and government funding bill includes a provision that would allow a tax deduction on up to $10,000 of loan interest for cars assembled in the U.S.¹²

The proposed deduction would most benefit single filers with modified adjusted gross income below $100,000 — and joint filers below 200,000 — with a gradual phaseout of benefits for filers at or above those levels.¹³

Read more: Learning the love language of taxes: It’s all in the lingo

The tariff picture 

It remains to be seen whether a recent surge in tariff-related car buying will continue to impact Americans’ overall auto debt. Several automakers — including Ford, GM, Kia, Toyota and Hyundai — reported significant year-over-year U.S. sales increases in April, after the U.S. imposed a 25% tariff on imported cars at the start of the month.¹⁴

That was followed by a 25% duty on foreign car parts in early May, but with several exceptions. For example, automakers can be reimbursed for tariff costs up to an amount equal to 3.75% of the value of a U.S.-made car. Canadian and Mexican auto parts made in compliance with the 2020 U.S.-Mexico-Canada Agreement also won’t face levies.¹⁵

Automakers welcomed those breaks, but haven’t ruled out price increases to offset other tariff impacts. Industry analysts are monitoring new car inventories and prices for a potential spillover effect on used car prices, similar to what happened during the pandemic.¹⁶ 

That recent bump in prices does have some benefits for buyers. There’s been very strong demand for three-year-old vehicles, creating a surprising boost in trade-in values for those in the market for a new car.¹⁷

Auto lending credit continued to flow this spring, although borrowers with less than stellar credit scores saw higher interest rates and down-payment requirements, reflecting lender caution. Credit availability in April was higher than a year ago, despite a mixed outlook of optimism and vigilance.¹⁸

Read more: The road ahead: What car buyers need to know as tariffs accelerate