Americans are already struggling to afford the costs of owning a vehicle, and President Donald Trump's tariffs may worsen that.

Economists say Trump's permanent 25% tariff on all cars made outside the United States will likely increase the prices of all cars by thousands of dollars. The tarifꦏf went into effect Thursday, and it will take time for cost increases to work their way through the economy. However, consumers were already struggling to afford their payments

At the end of 2024, Americans held $1.6 trillion in auto debt, and serious delinquency rates edged up to 2.96%. That is one of the highest delinquency rates compared to other debt types, according to the Federal Reserve Bank of New York.

“If tariffs cause the average price of a new unit to rise ... then even more consumers cannot or will not pay up for a new vehicle,” Jeremy Robb, senior director of economic and industry insights at Cox Automotive, said in a commentary. "As a result, some consumers will get priced out of new vehicles and must trade down to used vehicles, which puts more upward pressure on the value of used vehicles.”

Interest Rate🐎s Have A♕lready Pushed Up Car Payments

Some of vehicles' unaffordability can be attributed to elevated interest rates for car loans, which have made payments higher, according to economists at Bank of America.

Since January, the Federal Reserve has 澳洲幸运5官方开奖结果体彩网:held its fed funds rate in a range of 4.25% to 4.5% as it waits to see 澳洲幸运5官方开奖结果体彩网:what effects Trump's trade war will have on consumers. The key interest rate has kept all borrow▨ing costs relatively high, including the costs of car loans.

And it's unclear how tariffs will affect interest rates. President Donald Trump announced 澳洲幸运5官方开奖结果体彩网:additional broad-based import taxꦺes this week that economists said could push up inflation and poten🎐tially tip the economy toward a recession.

If that happens, the Fed could be stuck between its dual mandates—keeping inflation low and employment high—and that may cause the central bank to "sit on its hands until it sees how much the tariffs boost inflation," wrote Oxford Economics’ Ryan Sweet. That means interest rates could stay higher for longer as prices rise.