Car Shopping? The ‘Big, Beautiful Bill’ May Change What You Pay

The “one big, beautiful bill” was signed into law by President Donald Trump last week, with a gain for some car buyers and a loss for others

Consumers could now benefit from tax deductions on auto loans, but electric vehicle buyers will lose the savings vided by EV tax credits

The deduction is “above-the-line,” meaning it will apply to people who claim the standard deduction and those who itemize

To be eligible, car buyers and their cars will need to meet the ing criteria[0]Congress. 1 - One Big Beautiful Bill

Vehicle qualificationsNew purchase

The deduction applies only to new vehicles, not used ones

The vehicle must have final assembly in the United States

The deduction is for personal-use vehicles, excluding commercial vehicles and leases

Income limitationsSingle filers

The intent of the auto loan interest deduction is to make cars more affordable for buyers, given that average car prices and interest rates remain high

But the benefit for some car buyers will be limited

In fact, a person would need to get an auto loan of more than $110,000 to benefit from the maximum deduction, according to Cox Automotive Chief Economist Jonathan Smoke

Most vehicles priced at $110,000 or above would be luxury sedans or sports cars, and only 1% of all auto loans are of that size. “The typical new loan really would only see around $500 benefit, and that’s in year one and then declining over time,” Smoke said at the Cox Automotive 2025 Mid-Year Review on June 25

Average monthly car payments are around $750, and a record one in five new car buyers committed to $1,000+ payments in the second quarter of 2025, according to Edmunds

So, for most borrowers, the annual savings in loan interest would be less than their monthly car payment

Deducting auto loan interest isn’t a new idea

Car buyers planning to take advantage of EV tax credits should do so sooner than later

In addition to grabbing the credit before it is gone, car shoppers may find more EV incentives at dealerships wanting to move inventory

Auto industry groups had pushed for more time to mote EV sales before the tax credit ends, but their attempts were unsuccessful. » MORE: EV tax creditsWill interest savings offset tariff-driven price increases

The auto loan interest deduction is meant to imve vehicle affordability, but it won’t do much to help car buyers facing price hikes from tariffs

Here’s a breakdown to explain why

If the car you buy is foreign-built, you’re ly to pay more due to tariffs — and you can’t claim the loan interest deduction

All cars with final assembly in the U

Use some amount of foreign-made content, according to the cars

Com American-made index

So, while you can claim the interest deduction, its benefit is ly to fall short of the higher price you pay for the car

In theory, this should be a win-win, because this category of vehicles would have no tariff-related price increases and would qualify for the interest deduction, but they don’t actually exist (refer to the second bullet point)

While the tax deduction auto loan interest may be a small win for some car buyers, it doesn’t go far enough to offset the expected cost increase of tariffs for most. » MORE: tariffs and car pricesSmart steps to reduce the cost of buying a carWhether you gain a tax deduction or lose a tax credit from passage of the “one big, beautiful bill,” high car prices and interest rates make it more important than ever to prepare before purchasing a vehicle

Here are strategies to help you reduce your car cost and secure a monthly payment that fits your budget

Re pricing benchmarks

Before stepping into a dealership, look up the fair market value of the vehicle you’re considering

Use online tools Kelley Blue Book, Edmunds or NADA Guides to get a realistic idea of what you should expect to pay

Understand how auto loans work

If you plan to finance, take time to learn the basics of auto loans — including how car loan length affects your total cost and how your credit file impacts your interest rate

Being informed can help you avoid unfavorable loan terms

Compare financing offers

Don’t automatically accept the first loan offer you receive

Compare rates and terms from banks, credit unions and online lenders to find the most competitive auto loan

Even a small difference in interest rate can lead to significant savings over time

Use an auto loan calculator

Before applying for a loan, run the numbers using an auto loan calculator

Adjust variables loan amount, interest rate, term and down payment to find a monthly payment that aligns with your financial goals

The hannon BradleyShannon Bradley covers autos and services for NerdWallet