Why Your Next Car Loan Could Cost You More Than You Think

For many people, owning a car is an unavoidable thing. Unless you have access to reliable public transportation or you live in an area that’s very walkable, you may need a car to get to work every day, run errands, and function overall.

But many people can’t just hand over thousands of dollars for a car on the spot. That’s where auto loans come in.

You may, however, be surprised at how much you end up paying for an auto loan this year. Here are some of the reasons why.

1. Interest rates are soaring

Inflation has been battering consumers for years, and it’s the Federal Reserve’s job to do something about it. In 2022 and 2023, the Fed raised interest rates 11 times in an attempt to get inflation to cool down. And while the Fed’s efforts worked to some degree, inflation has remained elevated.

Because of this, the Fed has been hesitant to cut interest rates. The central bank made a few rate cuts in late 2024 but has stalled on rate cuts in 2025. And based on recent inflation data, the Fed might continue to pause rate cuts for a good number of months.

What this means is that right now, you may be looking at a higher interest rate than average on an auto loan. And that’s going to make your monthly car payments cost more.

2. Your credit might need work

Even if you have excellent credit, today’s interest rates are making it very expensive to finance a car (or borrow in just about any capacity). But if you have poor credit, you’re more likely to get stuck with a less favorable interest rate on an auto loan. And the higher your interest rate is, the more money you’re looking at paying each month.

A lot of people have seen their credit scores take a hit in recent years as inflation has driven prices upward, causing consumers to fall behind on their bills. If your credit score isn’t in great shape, you may want to hold off on signing an auto loan if you can so you’re able to work on improving it. You can boost your credit score by paying debts on time and whittling down balances on your credit cards.

3. You might get stuck with surprise costs

When you buy a car, there are a number of surprise costs that might pop up. These include title and registration fees and taxes on your vehicle.

Before you sign an auto loan, read the fine print and make sure you understand what costs you’re getting into. You don’t want to end up buying a car you can’t afford, because if you fall behind on your auto loan payments, you risk not only damaging your credit, but potentially losing your vehicle.

You should also know that if you’re buying a car, you don’t necessarily have to finance it through your dealer. It often pays to shop around for auto loans to see which lender offers the best rates and terms.

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