Why Car Buyers Are Stretching Loans: A Common-Sense Look at the Real Cost

Look at the numbers, and the story is clear. The average new-car loan now stretches for 69 months, with a record 22% of new-vehicle loans lasting 84 months or longer. That's seven years of payments for a car that's worth less the day you drive it off the lot. This isn't a new financial product; it's a practical reason for a tough situation. Buyers are stretching terms because they simply can't afford shorter ones with today's high sticker prices.

The math is straightforward. When the average new car costs over $50,000, a standard 48- or 60-month loan creates a payment that's too high for many budgets. The average new-car payment hit a near-record $748 a month, and nearly one-fifth of buyers are paying at least $1,000. That's the reality check. You kick the tires on a new SUV, and the monthly payment is a shock. So, the choice becomes: take a longer loan to lower the monthly hit, or walk away. For a lot of people, the longer loan is the only option that fits.

This trend is a direct response to rising prices. As one analyst noted, a 60-month term is Edmunds' recommended cap, but it's become less realistic for many buyers dealing with higher prices. The longer the term, the lower the monthly payment. But as the old adage goes, there's no free lunch. That lower monthly payment comes with a steep total cost. For a $50,000 car, an 84-month loan can cost over $5,000 more in interest than a 48-month loan. It's a trade-off between immediate cash flow and long-term value.

The Real Cost: Kick the Tires on the Math

Let's kick the tires on the numbers. Stretching a loan term lowers the monthly payment, that's the whole point. But common sense says there's no free lunch. The trade-off is a massive increase in the total interest paid over the life of the loan. The math is brutal.

Take a practical example. For a $50,000 new car with a 10% down payment and an average interest rate, the difference between a 48-month and an 84-month loan is stark. The 48-month term means a monthly payment of $1,078 and total interest of $6,724. Jump to the 84-month term, and the monthly payment drops to $679, but the total interest skyrockets to $12,050. That's an extra $5,326 paid just for the privilege of spreading the payments out. And that's before we even consider that longer loans often carry a higher interest rate-sometimes nearly a full point and a half higher, according to industry analysis.

Then there's the wild card of credit scores. The interest rate you pay isn't some abstract average; it's a direct function of your financial health. The gap is enormous. A borrower with super prime credit (780+) might secure a rate near 5.25%, while someone with deep subprime credit (500 or lower) could be paying over 15.77%. That difference isn't a rounding error; it's thousands of dollars over the life of the loan. It's a stark reminder that the "average" rate is a fiction for many buyers.

The biggest hidden risk, though, is negative equity. A car is a depreciating asset, and it loses value the moment you drive it off the lot. With a long loan term, especially on a new car, the depreciation can outpace the loan payoff. You wind up owing more than the car is worth-a situation known as being "underwater." The longer your loan, the greater this risk, as the old rule of thumb about keeping the loan term under four years was designed to avoid. Today, with seven-year loans becoming common, that risk is front and center. You're not building equity; you're paying for a rental that you own.

Market Shifts and What to Watch

The auto loan market is shifting under the hood, and that's what you need to watch. The trend of stretching loans isn't happening in a vacuum; it's shaped by who's lending, what the government is doing, and where interest rates are headed. Let's kick the tires on these dynamics.

First, the lender landscape. Banks still rule the road, holding the vast majority of auto loan debt. But the fastest-growing players are dealer finance companies. They've seen a 21.7% jump in auto debt over the past year. That's a big move, but it's still a small slice of the total pie. Their total loan amount is just $36.2 billion, dwarfed by the banks' $567 billion. This growth is important because these companies often lend to borrowers with lower credit scores, a key part of the subprime market. So, while the dealer finance boom is a real trend, it's not yet a seismic shift that will suddenly make long loans cheaper for everyone.

Then there's the new tax deduction. The "One, Big, Beautiful Bill" now lets you deduct up to $10,000 in auto loan interest for tax years 2025-2028. That sounds like a benefit, and it is-modestly. But common sense says to look at the fine print. The deduction only applies to new cars with final assembly in the U.S. It phases out for higher earners and doesn't help with used cars or foreign-made vehicles. For the average buyer stretching a loan, this is a small, targeted tax break, not a game-changer for affordability.

The Federal Reserve's recent move is more directly relevant. The Fed cut its benchmark rate by a quarter-point last month. Yet, the immediate impact on monthly payments is likely to be minimal. The average new-vehicle loan rate remains high, and the cut didn't move the needle much. The bigger story for 2026 is the possibility of more cuts. Officials project the rate could fall further, to a range of 3.25–3.5% by the end of next year. If that happens, it could ease some of the pressure on monthly payments. But for now, it's a future hope, not a present relief.

The bottom line is that the market is adapting, but the core pressures remain. Lender dynamics are evolving, a new tax break is available for a narrow group, and future Fed cuts could help. But the fundamental math of high car prices and long loan terms is unchanged. For now, the trend of stretching loans is likely to persist, driven more by what buyers can afford month-to-month than by any quick fix from the Fed or a new tax rule. Watch the Fed's path in 2026, but don't bet on it to solve the affordability problem anytime soon.

Catalysts and What to Watch

The trend of stretching loans is a practical response to a tough situation. The real question now is what could change it. Let's kick the tires on the catalysts and what to watch.

First, monitor the average loan term itself. The trend is clear, but the direction matters. If the average term stabilizes or even creeps higher as new vehicle prices hold firm, that confirms the affordability squeeze is deepening. The math is simple: higher prices force longer terms. The record share of 84-month loans at 22% is a red flag. Watch for any sign that this share starts to fall, which would suggest buyers are finding a way to stretch their budgets without going seven years. If it keeps rising, it means the pressure is only getting worse.

Then there's the lender's side. Watch for changes in credit availability and lending standards. The evidence shows access to credit had been tightening, which could force more buyers into longer terms if they can't get a loan at all. Conversely, if lenders loosen standards again to chase sales, it might temporarily ease the pressure on monthly payments. But common sense says that's a short-term fix that could lead to more risky loans down the road. The bottom line is that tighter rules could make the long-term trend worse by limiting options.

Finally, the new tax deduction is a longer-term signal. The IRS has issued guidance on the $10,000 deduction for interest on new, U.S.-made vehicles. Its effectiveness will be a slow burn. Watch for any shift in demand for new, U.S.-made vehicles as buyers factor in the tax break. If the deduction spurs a meaningful increase in sales of eligible cars, it could be a catalyst for dealers and manufacturers. But if it barely moves the needle, it will just be another footnote. This is a policy play, not an immediate fix for the core affordability problem.

The bottom line is that the trend is likely to persist unless something fundamental shifts. Watch the loan term data, lender behavior, and the slow creep of the tax deduction. For now, the setup is clear: high prices, stretched budgets, and a market adapting in ways that often cost more in the long run.