The Federal Reserve’s first interest rate increase since 2023 could add another financial burden for U.S. car buyers, raising borrowing costs just as vehicle affordability continues to deteriorate. The quarter-point increase brings the benchmark interest rate to 4.00% and could push new-car loan payments higher while increasing borrowing costs for automakers.

Higher Rates Add to Car-Buying Pressures

The rate increase is expected to raise the cost of new vehicle loans. Higher borrowing costs for automakers could also contribute to further inflation at dealerships, where vehicle prices have already reached record levels.

At the same time, motorists are paying more for fuel because of disruptions in petroleum supplies caused by the Iran War. Analysts warn that the combination of higher financing and fuel costs could force millions of potential buyers out of the new vehicle market.

“I can’t say the sky is falling but the pressures on affordability are not easing up,” Stephanie Brinley, associate director at Mobility Global, said when asked about the Fed rate hike.

Vehicle Prices Continue to Rise

The president does not set federal interest rates, although Donald Trump had expected to have a strong say in the matter when appointing Kevin Warsh as the new Federal Reserve Chairman. Warsh subsequently began signaling more independence than Trump apparently anticipated.

Earlier this month, Trump warned that he might respond to any rate hike by cutting trade with countries where the U.S. runs a trade deficit. Whether he follows through remains uncertain.

Trump’s policies are also seen as having an increasingly negative impact on the auto industry, although the article notes that he cannot be blamed for all of the sector’s challenges.

In the decade before Trump took office for a second term, inflation had already pushed average transaction prices higher. ATPs, which factor in MSRPs, options and discounts, climbed from $33,993 in January 2015 to $48,641 when Trump was sworn in.

Since then, Kelley Blue Book reports, average transaction prices have risen to $50,089 and are expected to continue climbing.

Auto Loan Costs Are Already High

Even before the latest Fed increase, automotive interest rates stood at 6.35% APR for new vehicles, up from a low of 4.1% in 2015. Used-vehicle buyers with good credit could expect a rate of 11.26%.

According to Experian, the typical new-vehicle buyer now finances $43,920, with the debt spread across an average of 60 months. The average monthly car loan payment is $748, while 20.3% of customers are paying more than $1,000 per month.

Loan terms are also getting longer, with 23.9% of new-vehicle loans now extending to 96 months or more.

Those figures could rise in the near future. “Auto loan rates tend to track the 10-year Treasury notes and longer-term market rates, and those have been moving higher lately,” Jeremy Robb, chief economist at Cox Automotive, wrote in a recent report.

Robb also warned that the Fed rate hike could provide additional upward momentum, with buyers potentially seeing their average loan bill increase by $6 per month. That estimate does not include further increases in vehicle prices.

Gas Prices Add Another Financial Hit

Fuel costs are adding to the pressure on American drivers. According to GasBuddy.com, the national average price for a gallon of self-service regular was $2.88 on February 27, 2026, the day before the bombs started falling on Tehran.

By Thursday morning, the price had reached $4.444, an increase of 15.2 cents in just one week.

Regular gasoline remains below its all-time high of $5.0165 per gallon, set on June 14, 2022. Diesel, however, reached a new record on September 4 at $5,82 per gallon and continued climbing, reaching $6.3956 on Thursday morning.

Rising Diesel Costs Reach Beyond the Pump

Higher diesel prices can affect consumers indirectly because diesel moves 76% of American freight by truck, rail, ship or barge, according to federal data.

The Independent Grocers Alliance reports that fuel accounts for anywhere from 15% to 30% of the cost of food, including farming, processing, transportation and refrigeration. Higher diesel costs could therefore add further pressure to grocery prices.

A study by research firm Upside found that American consumers are cutting back on groceries to pay for fuel. “More than a third of shoppers stopped buying ‘extra’ items like snacks and specialty foods, and a similar share switched from name brands to store brands,” Thomas Weinandy, principal research economist with Upside, wrote in a study for GroceryDive.com.

Trump has described rising gas prices as a “very inexpensive price to pay” for national security. This past week, he also suggested fuel prices will “come tumbling down” after the midterm elections.

However, the article says few experts expect that outcome, particularly with no end in sight to the Iran War. Yemen’s rebel Houthis are also attacking Saudi Arabian oil infrastructure, further reducing global petroleum supplies and raising concerns that shortage-driven price increases could continue into 2027.

Automakers Face Higher Costs, Too

Car buyers are not the only ones dealing with tighter budgets. The increase in the Fed’s prime interest rate will affect automakers that borrow billions of dollars for long-term investments and daily operations.

Rising fuel costs are another challenge, adding to the financial impact of Trump tariffs on auto imports. New duties of up to 50% also apply to metals that the industry relies heavily on.

About 60% of the aluminum and 30% of the steel used by automakers based in the U.S. come from foreign sources and are subject to Section 232 tariffs.

Automakers Try to Absorb Rising Expenses

Trump, with help from Congress, has taken steps intended to ease financial pressures on the auto industry. Among those changes, automakers no longer have to pay for missing federal mileage standards.

Stellantis provides an example of the conflicting financial effects. The company saved $590 million on such fines but subsequently wrote down $26.5 billion because of the administration’s new policies on EVs.

Automakers have been trying to absorb added costs where possible as rising prices push millions of Americans out of the new vehicle market. But that is becoming more difficult, particularly with new tariffs coming on Canada and other trade partners.

For consumers, the combination of higher fuel prices, rising vehicle costs and increasing loan expenses could make the next new-car purchase more expensive.