Why Buying a Car in 2025 Still Costs More Than Expected

Car prices have been a hot topic in recent years, and 2025 is no different. While some expected costs to drop significantly, the reality is more complicated. New and used car prices remain high, making affordability a challenge for many buyers. dd

In this article, we’ll break down the current state of vehicle pricing, the factors keeping costs elevated, and whether relief is on the horizon. You’ll also learn how supply and demand, rising interest rates, and disappearing budget-friendly options impact the market. Plus, we’ll explore expert car appraiser insights on whether now is the right time to buy—or if waiting could save you money.

By the end of this guide, you’ll clearly understand why buying a car in 2025 still costs more than expected and how you can navigate the market to get the best deal.

Are Car Prices Finally Stabilizing?

After years of sharp increases, car prices are showing signs of stabilizing, but they remain higher than many expected. While the market is no longer experiencing double-digit price hikes, affordability is still a challenge for many buyers.

The Slow Pace of Price Drops

Although new car prices declined by 1.3% from January to February, they are still 1% higher than last year. This slow price drop is due to a combination of lingering supply chain constraints, inflation, and strong consumer demand.

Used car prices have also softened compared to their peak in 2021 and 2022, but they haven’t returned to pre-pandemic levels. Many buyers looking for affordable options are still facing higher-than-expected costs.

How Supply and Demand Are Affecting Prices

• New vehicle inventory has improved, but automakers are focusing on producing higher-margin vehicles, keeping prices elevated.
• Strong demand for SUVs and trucks continues to push prices higher, while smaller, more affordable models are becoming scarce.
• Fleet sales are rebounding, creating increased competition for new vehicles, which slows price declines.

New Car Incentives Are Up – But So Are Prices

Car buyers in 2025 are seeing more incentives than in previous years, especially in the electric vehicle (EV) market. However, these discounts aren’t making cars significantly more affordable, as overall prices and financing costs remain high.

Manufacturer Incentives and Discounts in 2025

• The average incentive package in February 2025 was 7.1% of ATP (~$3,392), up from 6% a year ago—an 18.6% increase.
• EV incentives are more than double the industry average, accounting for 14.8% of ATP (~$8,162), the highest in over five years.
• Tesla’s ATP rose 1.8% year over year to $53,248, but prices declined for the Model 3, Model Y, and Cybertruck between January and February. The Cybertruck ATP dropped more than 10%, landing at $87,554.

Despite these rising incentives, not all buyers benefit. While automakers are offering better deals, they are mostly focused on high-end models and EVs, not the affordable cars that many consumers need.

Why Deals Aren’t Translating into Lower Overall Costs

• Interest rates remain high, negating savings from incentives.
• Luxury and six-figure vehicle sales are booming, driving the market average up. In January and February 2025, over 52,000 vehicles sold above $100,000, a 13% increase from last year.
• The most affordable car, the Mitsubishi Mirage, had minimal incentives (2% of ATP) and is now discontinued, further reducing budget-friendly options.

Even in competitive segments like Compact SUVs (Toyota RAV4, Honda CR-V, Ford Escape, Chevrolet Equinox), ATPs remain high at $36,198, with only a 0.5% year-over-year decrease.

For buyers, this means more deals are available—but mainly on high-priced models. Those looking for truly affordable vehicles are still struggling to find a bargain.

The Affordable Car Crisis – Where Have Budget-Friendly Options Gone?

For years, buyers could rely on entry-level cars to provide an affordable way to own a new vehicle. But in 2025, that reality is disappearing. The market is shifting toward higher-margin SUVs, trucks, and luxury models, leaving budget-conscious buyers with fewer choices.

How Entry-Level and Budget Vehicles Are Disappearing

• The Mitsubishi Mirage, the last new car in the U.S. under $20,000, has been discontinued. Its February sales fell 15% from January, signaling the end of truly affordable new vehicles.
• Compact sedans and hatchbacks—once a go-to for budget buyers—are being phased out in favor of larger, higher-profit SUVs.
• The lowest-priced new vehicles in 2025 come from brands like Mitsubishi ($30,410 ATP) and Nissan ($32,262 ATP), far above what was considered “affordable” just a few years ago.

The Rise of Luxury and High-End Vehicle Sales

While affordable cars vanish, the luxury segment is thriving:

• More than 52,000 vehicles sold above $100,000 in the first two months of 2025, up from 46,000 in early 2024.
• Five years ago, in 2020, that number was just 12,000 six-figure vehicles—a 333% increase.
• The Range Rover led the pack in February, with over 3,800 units sold above $100,000.

This shift means automakers are prioritizing profit-heavy models over affordability, leaving many consumers priced out of the new car market.

For those searching for a reasonably priced new car, the options are shrinking fast, and the used market isn’t much better.

Is Now the Right Time to Buy a Car?

Year after year, this question comes up: Should I buy a car now or wait? The answer is simple—there is no perfect time to buy a car. Prices may fluctuate slightly, but a major price drop is unlikely, and waiting won’t necessarily give you better leverage.

Just look at the average transaction price (ATP) graph from the previous section—prices have been on a steady rise since 2012, and there’s no indication they’ll suddenly reverse. With the exit of entry-level models and continued market shifts, affordability challenges will likely persist.

Expert Insights on Whether to Buy Now or Wait

• If you need a car, buy when you find a deal that works for you—timing the market is nearly impossible.
• Consider leasing or certified pre-owned (CPO) options for potential savings.
• Take advantage of incentives, especially for EVs and slower-selling models.

Strategies for Getting the Best Price in the Current Market

• Shop around for financing: A slightly lower interest rate can save thousands over the life of a loan.
• Look at alternative vehicle types: Sedans, hybrids, and some EVs have better deals than popular SUVs and trucks.
• Consider slightly older used models: A 3-5-year-old vehicle can offer significant savings compared to new.

At the end of the day, there’s no “good” or “bad” time to buy a car—it’s about finding the right deal for your needs and understanding the long-term cost of ownership.

Final Thoughts

Car prices remain high in 2025, with rising interest rates and fewer budget-friendly options making affordability a challenge. While incentives, especially for EVs, have increased, they haven’t significantly lowered costs. Used car prices remain elevated, and automakers continue prioritizing high-margin models over entry-level vehicles.

A major price drop is unlikely, so waiting may not provide an advantage. Instead, buyers should focus on securing the best deal within their budget by exploring incentives, comparing financing options, and considering alternative vehicle types. There’s no perfect time to buy—only the right time for you.