Auto Sales Are Holding Up — but Buyers Are Stretching Loans to Make Cars Affordable

New-vehicle sales cooled at the end of 2025, but Americans are still buying cars. They’re just paying for them over longer periods.

Full-year retail sales for 2025 will rise 4% from 2024, even as December itself posts a year-over-year decline, according to J.D. Power and GlobalData’s December 2025 U.S. Automotive Forecast. This proves demand remains steady despite economic uncertainty, tariff-related volatility, and elevated interest rates.

What’s changing is how consumers are financing those purchases. Monthly payments are at record highs, and a growing share of buyers are turning to extended loan terms — especially 84-month financing — to make new vehicles fit their budgets.

J.D. Power forecast that in December alone, loans of 84 months or longer would account for 10% of all financed vehicle purchases. That’s the second-highest December share on record, and a clear signal of how affordability pressures are reshaping the car market.

The appeal is simple: Longer loans lower the monthly payment. But the trade-offs are significant. Extended terms dramatically increase interest payments and, in most cases, would require prolonged full-coverage insurance.

Sales hold steady, but affordability remains strained

Total new-vehicle sales in December are expected to reach about 1.45 million units, down 7.5% from a year earlier. On a full-year basis, however, the forecast said sales will total 16.3 million vehicles, up 2.3% after adjusting for selling days. Retail demand, according to the forecast, will rise 4% this year, indicating that consumers haven’t stepped away from the market.

The average transaction price for a new vehicle in December will hit $47,104, up 1.5% year over year. Analysts project average monthly payments will climb to a record $776. Even with interest rates easing slightly — averaging 5.84% on new-vehicle loans — higher sticker prices continue to squeeze household budgets, leaving many consumers feeling the weight of these economic pressures.

Faced with those numbers, many buyers are choosing to stretch their loans rather than downsize their vehicles or exit the market altogether.

The rise of 84-month loans

J.D. Power estimates that more than 10% of December financed vehicle purchases involved terms of seven years or longer. This highlights how extended loans are becoming a key factor influencing consumer choices and market trends.

That share is up 1.4 percentage points from last year and sits near historical highs.

Interest costs balloon with the extended schedule. For example, a $47,000 vehicle with 15% down financed at 6% interest over a traditional five-year loan would have a monthly payment of around $772. Stretch that same loan to 84 months, and the payment drops to roughly $584 — a difference many households need in order to make such a purchase. But the longer loan adds approximately $2,700 in extra interest over its life.

That’s before factoring in depreciation. Vehicles lose value quickly in their early years, which means extended loans increase the risk of becoming “upside-down” — owing more than the car is worth. The risk is especially acute if owners trade the vehicle in early or it suffers damage.

The data show that risk is already building. J.D. Power projects that nearly 27% of trade-ins in December will carry negative equity, up 4 percentage points from a year earlier, and expects average trade-in equity to slip to $7,903, down modestly year over year.

Longer loan terms also add up to higher lifetime insurance costs

Moreover, extended financing lengthens insurance obligations, as lenders require full coverage for the entire loan period. This can lead to higher long-term insurance costs for borrowers using 84-month loans.

Lenders typically require full-coverage insurance on financed vehicles, which includes collision and comprehensive, for the entire life of the loan. The longer the loan term, the longer a driver must carry the higher level of coverage, even as the vehicle ages and depreciates. Many drivers will also find they need gap insurance, which pays the difference between a total loss payout and any outstanding balance on a loan or lease.

For borrowers using 84-month loans, that requirement can add years of higher insurance costs compared to shorter financing terms. While a driver who owns a car outright may choose to drop collision or comprehensive coverage as the vehicle’s value declines, a financed driver usually doesn’t have that option.

The cost difference between full-coverage and liability-only policies is significant. A full-coverage car insurance policy costs, on average, $2,100 annually, according to Insurify data. Liability-only policies average $1,188 annually.

Longer loans also increase the likelihood that drivers will experience multiple insurance rate changes while still paying off the exact same vehicle. These rates could rise due to inflation, regional loss trends, insurer repricing, or other factors that have nothing to do with individual driver behavior.

Why longer loans are becoming the norm

Nevertheless, industry analysts see the shift toward extended terms as a direct response to stubbornly high vehicle prices. Even as incentives increase and interest rates ease, the cost of new cars remains historically elevated. Retail buyers are on pace to spend nearly $56.6 billion on new vehicles in December alone. And the average price for a new car is approaching $50,000.

And the longer financing trend may not stop at seven years. With 84-month loans now commonplace, industry observers note that even longer terms — including 96- and 100-month financing — are no longer unthinkable as lenders and dealers seek ways to preserve demand in a high-priced environment.

A market still in transition

Beyond financing, the forecast reflects a market adjusting to shifting incentives and changing consumer preferences.

Analysts expect trucks and SUVs to account for more than 83% of retail sales in December, reinforcing the industry’s long-running move toward larger vehicles. By contrast, analysts project electric vehicles will make up just 6.6% of sales, down sharply from a year earlier as federal EV tax credits expire. Hybrids continue to gain ground.

What’s next? What it means for car buyers

For shoppers, the growing popularity of 84-month loans is both a warning and a reality check.

Longer terms can make a new car feel affordable in the short run. But they come with clear trade-offs: higher lifetime interest costs, greater exposure to negative equity, and fewer options if circumstances change. Insurance costs can also increase over time, as lenders typically require full coverage for the duration of the loan.

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