Report: Extended Car Loans Are Strapping More Autobuyers With Lower Equity, Reduced Buying Power

The rising cost of cars is pushing cash-strapped consumers into longer loans, forcing them to pay thousands of dollars in additional interest payments on a depreciating asset, a new study finds.The number of seven-year auto loans has doubled since 2018, to 14.7 percent of all outstanding loans, according to the study by the progressive think tank Century Foundation and the nonprofit consumer advocacy group, Protect Borrowers. Nearly 13 million borrowers now have car loans that stretch seven years or more.A seven-year loan adds an average of $5,868 in interest compared to a four-year loan with the same 9.9 percent interest rate, the groups say. Interest rates are generally higher for longer loan lengths because lenders consider them riskier.“Purchasing a car has become a financial trap, eating up more of people’s paychecks than ever before,” a co-author of the report, Angela Hanks, said.Car research firm Edmunds says nearly 23 percent of financed new-car purchases this year are tied to seven-year or longer loans — an all-time high. The company says the average amount financed for new vehicles climbed to a record high of $43,899 in the first three months of 2026, also reflecting the increasing cost of a vehicle since 2019. “While a larger down payment is typically the better financial move, many buyers simply don’t have that flexibility in today’s market, especially if it means diverting funds away from more immediate needs,” the director of insights at Edmunds, Ivan Drury said. “In those cases, extending the loan term can help achieve a similar monthly payment, but it often comes with higher long-term costs and added financial risk.”While people are treating their cars like houses — with no expectation of keeping it for as long as the loan, the difference for consumers is that houses appreciate, cars don’t. The longer loan lengths are putting a growing number of borrowers underwater — owing more on the loan than the vehicle is worth at trade-in time. About 30 percent of borrowers had negative equity on trade-ins during the first three months of the year. That can put borrowers further in debt as they roll the money owed on the previous car into a new loan.“The sheer amount of debt consumers are carrying in their trade-ins should be a wake-up call,” Mr. Drury said.While the average length of a loan on a car has increased, car-buying site iSeeCars reported in 2025 that owners kept new cars for an average of 8.4 years, suggesting that while cars will be worth less at trade-in, they will not carry debt into the future.Still, nearly one in three upside-down car owners owe between $5,000 and $10,000 — and a growing share owe far more than that, Mr. Drury said. “Much of this stems from shoppers trading out of vehicles too quickly, or carrying loans taken out during the pandemic car market frenzy, when prices were at record highs,” Mr. Drury said. “Those choices are now catching up, making it far harder to buy again without piling on even more debt.”A 2024 report by the Consumer Financial Protection Bureau found that carbuyers who financed negative equity were twice as likely as consumers with positive trade-in balances to have their car repossessed within two years.“For many car owners, there’s no quick fix for being underwater. It’s about minimizing how much deeper you go,” a consumer insights analyst at Edmunds, Joseph Yoon, said.The authors of the Century Foundation study laid blame for the higher auto prices and longer loans on Trump administration tariffs; however, vehicle prices rose dramatically during the pandemic due to supply chain issues and have remained elevated. A shortage of used vehicles for sale has also pushed more consumers to new car purchases.The One Big Beautiful Bill Act that President Trump championed aims to provide relief for car buyers. A provision in the act allows taxpayers to deduct up to $10,000 a year in interest payments on new American-built cars. The temporary deduction is in effect through the 2028 tax year.The Bipartisan Policy Center says that more than 1.2 million tax returns by April 10 had claimed the auto loan interest deduction. It says a $1,000 interest deduction would give a tax filer in the 22 percent bracket a $220 tax cut.

Report: Extended Car Loans Are Strapping More Autobuyers With Lower Equity, Reduced Buying Power

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