The Long Road to Debt: Lengthy Car Loans Can Cost You Thousands
Last updated October 23, 2025
New car prices have never been higher. The estimated average selling price in September was $50,080, according to Kelley Blue Book.
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Many buyers are dealing with this sticker shock by taking out longer loans to lower their monthly payments.
“This is indicative of how consumers are really having to decide where to put their money,” said Ivan Drury, Edmund’s director of financial insights. “And these are the levers they can pull to make that vehicle affordable.”
More than one in five new car loans taken out during the last four years were for 84 months (seven years) or longer, according to an analysis by Edmunds. Eight-year (96-month) loans are available now.
Auto experts at Consumer Reports recommend opting for the shortest loan term you can afford.
“Sixty months is the maximum ideal, but many Americans just can’t afford the monthly payment a 60-month loan presents,” said Keith Barry, senior autos reporter at Consumer Reports. “You really want to avoid the 84- or 96-month loans, though.”
Why You Should Avoid Longer-Term Vehicle Loans
There are two major downsides to taking out a lengthy auto loan:
You’ll pay more in interest.
While a long loan might make your payments affordable, it will also drive up your overall costs.
“Consumers often focus on the size of the monthly bill, but it can be helpful to take a closer look at how much is interest versus principal,” says Kimberly Palmer, personal finance expert at NerdWallet. “Crunching the numbers can show you that often opting for a longer loan means paying much more in interest over time, even though the monthly payment itself is lower.”
NerdWallet ran the numbers for a $35,000 new car loan at nine percent interest:
- With a 36-month loan, the monthly payment would be $1,113, and the total interest would be $5,068.
- With a 60-month loan, the monthly payment drops to $727, but the interest balloons to $10,424.
- With an 84-month loan, the monthly payment is $563, but the total interest is $12,302.
Lenders consider longer-term loans to be higher risk, NerdWallet noted, because there’s more time to default. To compensate for that risk, longer loans typically have higher interest rates.
You’ll be upside-down longer.
A longer loan won’t slow down the rate of depreciation. So, you end up being “upside-down”—owing more on the vehicle than it’s worth—for longer.
This can cause financial problems if the car needs to be replaced for any reason before the end of the loan term, such as if the family has grown, or the vehicle was stolen or totaled in an accident.
“With loan terms often stretching out for five to seven years, if you need or want a new vehicle after two or three years, you might end up having to kick in thousands of dollars to make up the difference between what you owe and how much the car is worth,” said Ted Rossman, senior industry analyst at Bankrate. “If you roll the negative equity into your new loan or lease, that's a tough treadmill to get off. It can cost you a lot of money over time."
This is becoming an increasing problem. More than one in four new vehicle trade-ins (28 percent) were underwater in Q3 2025, according to Edmunds, a four-year high. The average amount owed on upside-down loans hit a record $6,905.
Combining a small down payment with a longer loan increases your risk of getting into a never-ending cycle of debt, since it takes even longer to build up substantial equity.
How to Avoid Long Loan Pitfalls
If you can’t afford to buy a car without taking out a seven- or eight-year loan then you should buy a less expensive vehicle. One way to do this is to purchase a higher trim level of a mainstream vehicle rather than a lower trim level of a luxury vehicle.
“You might just have to bite the bullet and buy a vehicle that is safe, reliable, satisfying, maybe a little less luxurious, and with fewer options than you wanted,” CR’s Barry told Checkbook. “But the comfort gap between mainstream and luxury is smaller than it's ever been. CR’s testing shows that brands like Honda, Hyundai, Kia, Mazda, and Toyota are making models that are comfortable, quiet, and well-equipped.
Also focus on choosing a reliable model, which will lower your overall ownership costs.
“Remember, there’s no such thing as a good deal on a bad car,” Barry said.
Shop for Your Loan
You aren’t required to finance a car through the dealer, but it’s worth considering if the manufacturer is offering below-market promotional interest rates. But know that promotional interest rates are usually available only to those with high credit scores.
Also compare offers from various lenders, both local and national. Credit unions often have the lowest rates. Use sites like Bankrate.com to compare interest rates and fees. Even a small difference in the annual percentage rate (APR) can cost you thousands of dollars over the life of the loan.
If you’re ready to buy, get preapproved for a loan. This requires a credit check, but it simplifies the buying process by removing financing considerations from the bargaining table, leaving only the vehicle purchase price and trade-in offer to discuss.
The Used Car Option
New car prices are making used cars more attractive to many buyers. Maybe you can find a used version of the vehicle you want—letting the previous owner eat the depreciation. In many cases, vehicles less than three years old are still covered by the manufacturers’ warranties.
While still significantly more affordable than new vehicles, used car prices have increased dramatically, driven by a limited supply and higher demand.
The average price of a three-year-old used model is now about $32,600, up from $23,159 in 2019, according to a report from iSeeCars. In 2019, almost half of all three-year-old used cars cost $20,000 or less. Today, it’s just over 10 percent.
As with new cars, the shorter the loan term and the larger the down payment, the better. Since loans for used cars have significantly higher interest rates than those for new cars, comparison shopping is critical.
How About Refinancing?
If you have fair to good credit, you may be able to refinance to a shorter term, which can save you money and help build equity in the vehicle more quickly. If your credit score has improved since taking out the original loan, you might qualify for a lower rate.
Another option is to pay more than your monthly minimum, which will reduce the length of your loan. Verify that the lender understands the extra money is intended to pay down the principal.
More from Checkbook:
How to Get the Best Price on a New Car
Consumerpedia, Episode 83: Tips for Buying a New, Used, or Electric Car
More from Consumer Reports:
Who Makes the Most Reliable New Cars
Best Used Cars and SUVs Under $20,000
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Blue Sky, X, Instagram, and at ConsumerMan.com.