Let me say this upfront—I don’t think 2025 is the easiest year to buy a car with the rising interest rates.
Rising interest rates have hit everyone, from first-time buyers to people who want to upgrade their whips.
Back in 2021, financing a car at 3% was normal. Now we’re staring down 7% to 9%, and in some cases, double digits if your credit isn’t spotless.
Key Points Discussed in this Blog:
| How Interest Rates Affect Auto Financing Higher interest rates lead to increased monthly payments and greater total loan costs, which will stretch your budget or change your car-buying decisions entirely. Impact on New vs. Used Cars In 2025, new car loans are slightly more favorable due to manufacturer incentives. However, used car loans often carry higher interest rates, making them less attractive in a high-interest-rate market. Role of Credit Score in Loan Approvals Buyers with high credit scores still secure better financing terms, while subprime borrowers face much steeper APRs. Lease vs. Loan in a High-Interest Climate While leasing may offer lower monthly payments, higher money factors (lease equivalent of interest rates) reduce its advantages. Smart Strategies to Combat Rate Hikes I suggest shopping around for pre-approved offers, considering shorter loan terms, increasing down payments, and using online tools to compare the total cost of ownership before committing. |
Monthly Payments Are Rising, Even If Prices Are Dropping
Sure, vehicle prices have started to settle. But higher interest rates mean your monthly payment could still be higher than someone who bought a more expensive car two years ago.
Here’s a basic math check I did:
A $35,000 car at 3% interest for 60 months costs about $630/month.
At 8%? You’re looking at $710+. That’s $4,800 more over the loan term.
We think that’s the kind of increase most people don’t realize until it’s too late.
Credit Score Matters More Than Ever
Your credit score used to be a helpful bonus.
Now? It’s the difference between an okay deal and getting fleeced.
In 2025, we’re seeing lenders tier interest rates more aggressively.
- 780+ credit? You’re golden.
- 650–700? You’ll get approved, but it’ll sting.
- Below 600? Expect double-digit APRs or even rejection.
If you’re not in the top credit tier, I’d suggest waiting a few months and focusing on improving your score before walking into a dealership.
Leasing Is Back in the Game
I was talking to a friend of mine last week—he’s our in-house design guy who’s currently driving a leased EV.
I talked to him about his experience of leasing a car and living with it. A lot of people forget that you have to live with the car too. It doesn’t just stop at buying the car.
Anyway, he told me: “Leasing protects you from long-term loan traps in years like this.”
And I couldn’t agree more.
With shorter terms and often lower monthly payments, leases have become a lot more appealing, especially if you’re driving a lot less or waiting for the EV market to stabilize.
Consider Buying Used (but Be Smart About It)
Used car prices have cooled in 2025, but you need to be strategic.
The key is low mileage + solid warranty coverage.
Don’t get caught chasing a “deal” on a car with 120k miles and no maintenance history.
I’d recommend always checking the financing terms on used vs. new.
Some lenders still treat used cars as higher risk, which means you don’t always get a better deal, despite the lower sticker price.
Pre-Approval Isn’t Optional Anymore
Here’s the thing most people skip: getting pre-approved.
Pre-approvals let you know the exact rate you qualify for before a dealer can spin stories.
It gives you leverage. Dealers love to focus on monthly payments—pre-approval shifts the conversation to total cost.
My Thoughts on the Rising Interest Rates for Cars
I think car buying in 2025 is about having control. You can’t control the Fed, but you can control how prepared you are.
Maybe you have been eyeing that particular car model, and you feel like you cannot wait anymore. Trust me, I understand that feeling.
But I’d say patience is key!
Pre-approvals, knowing your credit score, and being open to leasing or certified pre-owned vehicles will make a big difference.
If I were in your shoes and had to buy a car this year, I’d lean toward used cars with warranty coverage and walk in with a locked-in rate.
Now, I’m aware that there’s a certain stigma surrounding used cars, but I have bought 2 used cars over the years, and with proper checks and caution, I bought both of them for a very good price.
My point is, do not put the option of buying a used car aside immediately, give it a try, and if it doesn’t suit you, or you still want to buy a new car, go right ahead!
