- Majority of car shoppers were holding off their purchases due to high interest rates, according to Edmunds.
- EV buyers were looking forward to a Fed rate cut, as the average new EV is still pricier than the equivalent new gas car.
- The used car market may see some relief, as it faces the highest interest rates.
After years of getting squeezed out by high interest rates that helped make auto loans more absurdly expensive than ever, Americans may finally be getting some relief after the Federal Reserve slashed its benchmark interest rate by 50 basis points yesterday. That brings interest rates down to about 4.9%, down from their more than two-decade high.
In theory, this is good news for car buyers, as interest rates on auto loans that have been exorbitant for so long could dip in the coming months. And it may be especially good for those interested in electric cars, which have hit uneven sales this year as their higher prices—coupled with those pesky interest rates—have not always felt enticing to people worried about costs across the board.
If you’ve been on the fence, this might be the nudge you need to make that purchase, one expert said.
According to car-buying website Edmunds, 74% of car shoppers considering an EV said the timing of their purchase would depend on the Fed rate cut. About 57% of those intending to buy gas cars were awaiting the same. That's not surprising, as EVs have been historically more expensive than gas cars, but that gulf is slowly getting bridged as more affordable models enter the market.
“It's not necessarily going to convert someone who has not thought about buying a Tesla or any other EV, but it could be like the final push they need,” Jessica Caldwell, the head of insights at Edmunds, told InsideEVs.
For those who haven’t already chanced on the attractive lease and financing options on EVs, or dipped into the used EV market, this may be their signal to go for it. “Unlike many other consumer goods, personal transportation is often non-negotiable and most vehicle owners can only hold off so long on making a purchase,” Caldwell said.
The EV market is far more price-sensitive than automakers once thought. That’s why most major carmakers are now rushing to develop the next-generation affordable electric car that can forge the path toward mass adoption and help automakers meet the EPA’s upcoming emissions targets.
Caldwell said price-conscious buyers who typically lean into the used car market and contend with the highest auto loan rates may feel some relief—that’s assuming that the rate cuts trickle down to buyers at some point in reality.
While EVs might benefit, Edmunds’ data shows the broader auto industry is still struggling with high financing costs. Data shows that between January 2015 and this August, monthly payments and interest rates for cars have increased substantially and remained at a high level since the pandemic.
The average monthly payment for a new car in August was $737 with a 7.1% APR. The average monthly payment for a used car was $548 with 11.3% APR—close to what buyers paid for new cars back in January 2020. Average interest rates for new cars have gone from 4.5% a decade ago to a peak of 7.6% towards the end of last year.
A mix of supply chain disruptions and higher production costs, all of which began during the pandemic, have kept interest rates high. Add to that inflation, rising raw material prices and automakers' shift to higher-margin models means swathes of buyers couldn’t drive home the new set of wheels they wanted to.
“For the [average] vehicle, the prices have gone up north of $40,000,” Caldwell said. “That's where the real disconnect is, in the $40,000 to $60,000 range where people are just like, that should be $30,000, not $40,000.”
For new EVs, it can be worse because they still cost more on average than gas cars. According to Cox Automotive, the average transaction price of an EV was $56,575 in August 2024, whereas the industry average that includes all fuel types was $48,177.
When you lease an EV or scan through the used car market, things look radically different, of course. The average used EV is now cheaper than the average gas car, costing well below $30,000.
As interest rates fall—potentially with Fed another rate cut after the November elections—Americans who have been holding out on buying, whether it’s a gas car or an EV, might finally open their wallets. But, as Caldwell pointed out, it all starts with loan approval and managing those monthly payments.
“It's not going to suddenly make cars affordable for everybody,” she said. “But it’s still a good direction in which they're going for the average consumer.”
Contact the author: suvrat.kothari@insideevs.com
