Key Takeaways
For some households, buying a new car may be slightly more affordable in late 2026 when borrowing costs come down and a new tax benefit kicks in.The changes aren’t expected to move the needle much for low-income households, according to Oxford Economics.
It could be a shrewd financial move to replace your car—next year.
Buying a new vehicle may be a bit more affordable by late 2026, Oxford Economics said Wednesday. Car companies may ease up on price increases by then, the economic consulting firm said, while lower borrowing costs and a tax benefit may also benefit buyers.
That may offer a measure of relief to Americans who have felt uncomfortable with car prices since they shot up some 9% during the pandemic, according to Cox Automotive, which provides research and services to auto companies. Households are expected to buy 2% to 3% fewer cars in 2026 than in 2025, according to Oxford and Cox.
“It’ll take time before affordability improvements resonate with consumers’ psyche,” Oxford said in a report. “Affordability’s been improving since 2023, and yet consumers remain downbeat about their assessment of whether it’s a good time to buy a vehicle.”
Why This News Matters to Consumers
You may want to see how much the new tax benefit could save your family before making any decisions on car purchases. The deduction on new car loan payments is available to households making up to $150,000 annually, and most significant for those making up to $100,000 annually.
The average new vehicle cost about $49,800 in November, up roughly 1% from a year earlier, according to Cox. Prices tend to rise about 3% a year, Cox said. Manufacturers have recently limited price increases, but aren’t expected to absorb the cost of tariffs much longer.
“We expect vehicle prices to at least return to their pre-tariff trend, with much of the rise in prices coming in [the next four months], as the 2026 model changeover process plays out,” Oxford said. “We expect to see a more muted rise in vehicles’ prices in the second half of 2026.”
By then, Federal Reserve rate cuts may have “substantially” lowered interest rates, and those who finance a car that was assembled in the U.S. may get a relatively large tax return, Oxford said. The new tax benefit may offer the typical consumer about $50 more a month, the group said.
The average monthly payment currently accounts for 12.8% of the median income, but that may drop to 12.3% in the final quarter of 2026, Oxford said. (Estimates are based on the average new vehicle price and assume buyers make a 15% down payment on a 66-month loan.)
While lower financing costs and other incentives could improve affordability, Cox and other experts say prices themselves may moderate their growth at best. Price inflation for 2026 model-year vehicles has been above historical standards, according to JP Morgan research, and those cars account for some 60% of current new-vehicle supply.
“Purchasing a new vehicle will remain unaffordable” for low-income households, Oxford said. “Meanwhile, new tax breaks will support sales by middle-income households, and wealth gains will underpin spending on vehicles by high-income households.”
The end of the year is seen by some market watchers as an advantageous time for used-car shoppers.