Should You Rush to Buy a Car Before Tariffs Rise? Here’s Why It Might Backfire.

Individuals hastening their vehicle purchases to dodge rising costs amid intensifying worldwide trade tensions might encounter an unforeseen obstacle: challenges securing a manageable auto loan.

On Wednesday, President Donald Trump declared 25% tariffs on imported vehicles and specific car components. This move comes as part of a series of duties set to begin at the beginning of next month or those currently implemented, all aimed according to the White House at boosting U.S.-based production.

If the 25% tariff is entirely shifted onto buyers, it might increase the advertised prices of certain widely purchased vehicles, which aren’t currently produced within the country, by approximately $6,000 to $16,000, as stated by iSeeCars.

A strategy for individuals concerned about tariffs leading to higher product costs is to accelerate a purchase they are already intending to make while resisting the temptation to panic-shop.

Of course, it’s no easy feat For many individuals to swiftly incorporate a significant expenditure like a car into their financial plan can be challenging. Besides the vehicle's price tag, there’s an additional element that could easily slip under the radar amid all the discussions about tariffs: the accessibility and expense associated with obtaining auto loans.

Securing an automobile loan nowadays often necessitates having an excellent credit score. Approximately fifty percent of auto loans issued during the final quarter were granted to individuals whose credit ratings ranked "superprime," scoring at minimum 781 on a scale ranging from 300 to 850, as reported by Experian, the credit reporting agency.

In February, the typical credit score for Americans stood at 701, which represents a slight decline from January's figure of 702, as reported by VantageScore. According to their criteria, a prime score falls within the range of 661 to 780.

At a moment when automobile loan defaults have rose to heights not witnessed since 2010 Lenders might be giving extra thought to identifying which borrowers are most likely to repay their loans successfully.

Financing is essential for almost everyone except those who can afford to pay cash, considering the typical cost of a new vehicle exceeds $49,000 and the usual monthly installment has reached approximately $750 as stated by the automobile purchasing website Edmunds.

However, a growing number of consumers express skepticism about their capacity to secure a car loan.

According to a February survey conducted by the Federal Reserve Bank of New York, one-third of respondents indicated that they anticipate being denied a car loan within the next year. This figure represents an all-time peak since the New York Fed began querying individuals about their past credit experiences and future borrowing expectations over ten years ago.

In total, lenders provided $175.1 billion in car loans during the previous quarter, which marks a decline from the $184.2 billion issued in the preceding quarter, as reported by the New York Fed.

"Securing an automobile loan can be a daunting task even under ideal conditions, and incorporating the complexities of tariffs along with a shrinking credit market makes it considerably more challenging," explained Kimberly Palmer, a personal finance specialist from NerdWallet.

In addition to elevated car prices, purchasers also encounter steep interest rates, even with the Federal Reserve’s reductions, which were meant to lower them. intended to lower lending rates for consumers.

In November, banks charged an average of 7.82% for a five-year loan on a new car, as reported by the Federal Reserve. For lenders such as dealership financing units, this rate was somewhat lower, at around 6%.

The typical amount borrowed per loan exceeded $41,500, an increase of about $1,000 compared to the corresponding period in 2023, as reported by Experian.

It remains uncertain how much of the additional tariff expenses car purchasers will bear and how much producers will take on themselves. According to an analysis from J.P. Morgan's experts, these tariffs could potentially amounts to billions of dollars for the auto industry , though the effect may differ from one company to another.

Despite car manufacturers and parts suppliers bearing the direct expenses, they will inevitably experience "the discomfort" associated with reduced demand and decreased output, according to the report.

If these expenses are passed on, consumers "are already struggling with record-high average transaction prices for new vehicles and extremely elevated interest rates," according to analysts. Americans are also grappling with increased costs due to tariffs on various goods, which certain estimations suggest might add between $1,200 and $1,600. household’s annual budget .

Even with the imposition of tariffs, potential automobile purchasers shouldn't hurry into decisions, according to Palmer. Buyers ought to compare various options to find favorable terms and secure appropriate financing. a complimentary copy of their credit report and look for mistakes that might be lowering their credit score.

She mentioned that there isn't just one path to securing a car loan. This diversity of options is worth keeping in mind as individuals might otherwise perceive themselves as limited in their selections. "You aren't obligated to utilize the financing plan provided by the automobile dealer," explained Palmer. "Exploring alternatives such as banks, credit unions, and web-based lending institutions will allow you to obtain better deals."