New car buyers are resorting to a risky trend | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

New car buyers in the U.S. were put through the wringer in 2025.

Tariffs and the threat of rising prices cajoled countless car buyers into finally making the big purchase, leading to the strongest market in years.

Retail consumers spent $620 billion on new vehicles in 2025, according to Automotive World, citing J.D. Power data, a nearly 6% increase from the previous year. The increase was driven by a threat that never really materialized.

U.S. 2025 new-vehicle sales forecast

GM: 2.83 million vehicles (+5.1% year over year); 17.3% market share
Toyota: 2.52 million vehicles (+8.4% YoY); 15.5% market share
Ford: 2.18 million vehicles (+5.6% YoY); 13.4% market share
Hyundai: 1.84 million vehicles (+7.9% YoY); 11.3% market share
Honda: 1.42 million vehicles (+0.6% YoY); 8.8% market share Source: Cox Automotive

“Despite much speculation regarding major increases in new vehicle prices due to tariffs, the actual increases, as correctly predicted by J.D. Power, have been muted,” the firm said.

The average retail transaction price in December for all vehicles is estimated to reach $47,104, a $715 (1.5%) increase from the same period last year. Separating EVs, which on average are more expensive than ICE vehicles, the average price of a gas car rose 1.4% to $46,807.

But that doesn’t mean that all is well for drivers heading into the new year.

“The industry is not without its challenges, however. Affordability pressures remain significant, with monthly finance payments reaching a new record for the month of December at $776,” said Thomas King, president of OEM solutions at J.D. Power.

While affordability is an issue, Americans are turning to riskier credit agreements to make their new car purchases.

Most experts advise car buyers to keep car payments to about 15% of their monthly income.

Photo by milorad kravic on Getty Images

More Americans take out 84-month car loan terms

Car manufacturers relied on incentive pricing to help address consumer affordability concerns in 2025.

Ford rode dealer incentives, combined with consumer anxiety about tariffs, to become the top-selling brand in the U.S. during the year’s first half. Ford said total sales in the second quarter rose at a rate seven times that of the overall auto industry.

“Automakers are providing healthy incentives to keep sales flowing. Prices are trending higher, but just as we are seeing in the broader retail markets, there’s sufficient demand and generous incentives out there, and that’s driving the market,” said Cox Automotive Executive Analyst Erin Keating earlier this year.

However, as the year progressed and the tariff situation became clearer, incentive spending declined.

The average manufacturer’s incentive spend per vehicle in December was $3,433, representing just a $77 increase from the same period a year ago. Incentive spending on average represents about 6.5% of a vehicle’s MSRP, a 0.1% increase.

To make up the gap, more customers are resorting to extended 84-month loan terms, which accounted for 10.1% of financed sales in December, according to J.D. Power.

That is the second-highest level on record for the month after 2021.

U.S. car buyers are spending too much on driving

Most financial experts recommend spending no more than 15% of your monthly income on a vehicle.

In addition to capping your car payments at about 15% of your monthly take-home pay, financial experts also recommend that shoppers aim for a 20% down payment, a 36- to 48-month loan term, and expenses (including insurance) at between 8% and 10% of your gross monthly income.

According to a MarketWatch Guides survey , about 10% of drivers say they spend 30% of their monthly income on driving, while another 12% said they “found themselves living paycheck to paycheck due to the financial strain of their cars.”

Nearly half of American drivers cite car expenses as the reason they can’t save any money, and the average American spends about 20% of their monthly income on auto loans, fuel, insurance, and maintenance.

A Bank of America survey from this summer found that among households with a monthly car payment, 20% have a payment over $1,000.

Baby Boomers, Gen X, and older Millennials all saw decreases in the percentage of their members paying more than $2,000 a month for their vehicles in the past few months.

Gen Z and younger Millennials saw an increase in members paying more than that amount.

Bank of America also saw an increase in $2,000 a month auto bills among people making less than $50,000 and between $50,00 and $100,000. Meanwhile, that type of spending decreased among people making more than $100,000.

“Bank of America payments data shows that overall median car payments are already more than 30% higher than the 2019 average and have now outpaced both new and used car prices, possibly as there is a push towards more expensive cars,” analysts Taylor Bowley and David Tinsley wrote.