How to not lose money on your car in 2025

Cars are the #1 wealth destroyer – here's what to watch out for

Jun 30, 2025

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Cars used to be a sign of wealth. Now they could be destroying it instead.

The average price of a new car is set to cross $50,000. Auto loan payments are exceeding $745 per month, and Americans are officially falling behind on their payments, with interest rates at record highs – leading to levels of car repossessions we haven’t seen since the 2008 financial crisis.

Why are cars becoming America’s #1 Wealth Killer?
Why are used car prices spiking again?
Which datapoints do you need to be aware of to save a ton of money?

In today’s issue, we’ll cover everything you need to know to ensure a smooth ride.

When second-hand cars cost more

Cars are a bad investment. You’ve probably heard that cars lose about 10% of their value the moment you drive them off the lot. From there, prices continue to fall by 10-20% a year leaving you with 40% of the price you paid by the end of 5 years of ownership. That’s what happens in a normal market.

But in the last few years, this has been turned upside down.

A shortage of auto-manufacturing due to a limited supply of parts, record-low interest rates, and a surge of demand reversed the laws of gravity and used car prices started to go up instead. In 2021, used car prices were 40% higher than the previous year – if you had bought a car in 2020, you could have driven it around for free and sold it for a profit.

Buyers were as desperate on the other end. Throughout 2022, buyers were willing to pay over sticker price to just get a new car from the dealership, paying over 9.9% above MSRP at the height of the shortage. After the pandemic, every other shortage eventually fell back to reality – yet car prices never really crashed.

New cars are still $12,000 more expensive than a few years ago, implying that a typical family would have to spend 70-80% of their annual income just to buy a car at today’s prices. This is double what it was in 1990. Car prices are outpacing incomes and more buyers have payments that exceed $1,000 per month.

On top of this, debt is spiraling out of control.

The financing crisis

When buyers purchase a car, they rarely pay with cash. The vast majority are financed – over 85% of new car purchases and 55% of used car purchases are bought with debt. Selling these loans is becoming a bigger stream of profit for car dealerships than selling the cars themselves, and that’s becoming a problem because these loans are being given away to people who can’t pay them back.

Auto loans don’t have the same strict underwriting requirements as home loans. In late 2021, Jalopnik ran a story which showed just how ridiculously easy it is to get approved for a car loan, making it a Wild Wild West for predatory lenders. Their investigation found that:

“Borrowers in every credit score category – ranging from super-prime (with scores of 720+) to deep-subprime (below 580) – were given loans with APRs from 0 to more than 25%.”

This meant that buyers with great credit scores were being swept into high interest loans at more than double what they had to pay on average, because they were desperate to get their hands on a car. Meanwhile, 25-50% of loans were given to customers who might not be able to afford them. Lenders verified income just 4% of the time to confirm if the borrowers could repay the loans.

What was the result of this?

5% of all auto loans in the US are more than 90 days behind on payments.
Subprime loans have hit a record high delinquency.
39% of all buyers are underwater on their purchase – they owe more on the car than what it’s worth (so even repoing won’t recover the loan amount).

Why was this allowed to happen? Car dealerships are making more of a profit on the loans than the car sales, so it’s in their interest to keep pushing more loans. This has created a bubble, in which US Auto Loan balances have ballooned to $1.64 Trillion. After mortgages, this is now the second-largest debt category.

People have been taking out so much money to just buy a car that auto debt has increased 70% in the last decade. Because they’re taking out loans they can’t afford, they are stretching it out over longer periods to make the payments manageable.

Before the pandemic, if they were taking out a $30,000 loan over 4 years, now they’re taking out a $50,000 loan over 8 years. This way, their monthly payment stays the same – but they end up paying much more due to increased debt and interest. In the bargain, they’re getting less equity over time.

However, something else is happening now that could completely flip the car market and that’s…

Inventory

There are two things to keep an eye on if you plan to buy or sell in the next year.

Let’s look at the first one: Rising inventory. Cars are often measured in “Days Supply,” which calculates how many days it would take to sell the existing stock at the current sales rate. When demand is high and supply is low, this figure is low. At the worst point of the pandemic-induced shortage, most brands had a Days Supply under 30 days, with some of the popular models selling out the moment they hit the lot.

Now we’re back to about 70 days’ worth of supply. For most cars. But not all cars are treated equally even in this balanced market:

Dodge sits on 111 days worth of supply. Ford has 99. Lincoln has 127 days. Due to unsold inventory, these companies are compensating with plenty of discounts.
Toyota, Honda and Subaru are still in high demand – some models have under 40 days’ worth of supply. Prices are remaining stable for these automakers.
The largest increase was for the BMW 4-series. It’s up nearly 20% YoY in the used car market. It’s probably because of limited supply, combined with a high demand for luxury cars in this range.
The same’s true for Infiniti QX60 which is up 16.5%, and the Porsche 718 which is up 15.7%.

But the largest decrease was from the Tesla (if you’re a Tesla owner, I’m curious what you’re going through now. Let me know by commenting or replying). Prices for Teslas fell double-digits over the last year, and they depreciated 70x faster than a Chevy! Some of that’s because of Elon Musk becoming a polarizing figure. But also, electric vehicles are changing rapidly: Buyers want the latest tech, and anyone who’s in the market for an EV is probably holding out.

If you’re in the market for a used EV right now, it’s looking tempting to score a good deal for a fraction of the price. If you’re on the other end, trying to sell a Tesla you bought between 2021 and 2023, it’s probably worth 50-70% less than you paid.

The other thing you need to keep in mind is:

Tariffs

Automakers are now preparing for a 25% tariff on imported vehicles and parts. They would be passing on this increase to customers, meaning prices could go higher again. US-built cars would go up by $3,000 and vehicles made in Mexico or Canada would go up by $6,000, as per analysts. Meanwhile, Porsche is holding on to inventory because they’re unsure of how much to mark up prices to compensate for the cost.

But why are prices of US-built cars like Ford going up due to tariffs?

Even if these manufacturers assemble in the US, they source their parts from other countries because it’s just not practical to source everything locally. No matter what car you buy, there will be an impact on its price if tariffs remain in effect.

Automakers might also stop making lower-priced cars altogether. They need to turn a profit after all, and if the parts are too expensive or hard to find, it would lead to delays in productions and decisions to focus on the parts of the business that are actually making money. On average, each car might cost $2,000 more than it did, due to tariffs.

So where are prices headed?

Most experts believe used car prices will continue to go down over the next year, gradually. If loans continue to default and new car inventories stay high, even new car prices could fall a few percent due to increasing competitions.

But if tariffs stay in place, they might counter these forces and eras this decrease, pushing new cars to become more expensive, increasing demand for used cars, and driving up their price too. We’re already starting to see this. According to CarEdge, retail customers looking at a sub $20,000 price-point are being forced to look at older used vehicles because the new ones are beyond their budget.

If you’re in the market for a car, I recommend this: Take your time, don’t be afraid of negotiating, and if you get a loan, don’t lock it in immediately. Shop around to find the best option so that the dealership doesn’t charge whatever they want. Credit Unions are a great resource for this, and you could even do this by yourself to save a ton of money. It doesn’t hurt to ask, does it?

In terms of what you could afford, keep the 20/40/10 rule in mind.

Stick with a 20% down payment on a 4 year loan, where you spend no more than 10% of your monthly income on transportation. If you can follow that, you’ll be in a comfortable position financially.

Unfortunately, most people do the exact opposite – the average down payment is just 11.7%, and they take out a loan for 72 months (6 years). On top of this, they keep the car for just 71.4 months, so even before they finish payments on the old loan, they sell the car and roll it over into a brand new loan. This starts the process all over again, from a place of negative equity.

As long as you don’t put yourself in this situation and look out for the inventory and tariff position, you’ll be in a much better place to save money on the next car you buy or sell.

Do you think you got an especially good/bad deal on your car? What did you do differently?

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