Seven-year auto loan share jumps: buyers stretch budgets to afford monthly payments

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More car buyers are stretching payments out to seven years as vehicle prices and borrowing costs climb, a trend that is reshaping auto affordability and could leave some owners owing more than their cars are worth. New data show long-term loans are becoming common — and costly — for shoppers trying to keep monthly payments manageable.

Data from Edmunds indicates that a record share of financed new-vehicle purchases in the first quarter used loans of at least 84 months, while the typical loan size also hit a new high. The shift has practical consequences: bigger monthly bills for many households and greater risk of negative equity if a vehicle’s value falls faster than the loan balance.

More buyers choosing longer terms

Edmunds reports that 22.9% of financed new-car purchases in Q1 were financed for at least 84 months, up from about one in five a year earlier and roughly double the share from a decade ago. At the same time, the average amount financed for a new car rose to $43,899 in the quarter.

Industry analysts say this is a clear sign of strained budgets. Jessica Caldwell, head of insights at Edmunds, frames the trend as consumers “working harder to make the numbers fit” as sticker prices and financing costs climb.

Price pressure: what the market looks like now

The average sticker price for new vehicles has stayed above $50,000 for a year, hitting about $51,456 in March, according to Kelley Blue Book. After dealer incentives, the average transaction price was roughly $49,275, up 3.5% from the prior year — a pattern driven in part by strong demand for larger, more expensive models.

That shift in model mix is changing who can realistically afford new cars. Cox Automotive found the share of new-car buyers with household incomes under $100,000 fell from around half in 2020 to 37% last year.

Why buyers are stretching loans — and the trade-offs

Rising living costs are another pressure point. The latest U.S. Bureau of Labor Statistics reading shows consumer inflation remains above the Fed’s 2% goal, leaving many households with less discretionary room for car payments. That reality makes longer terms appealing because they lower the monthly obligation.

But longer loans add up. Matt Schulz, chief consumer finance analyst at LendingTree, warns that while a stretched term reduces the monthly number, it substantially increases total interest paid and can make the purchase far more expensive over time. He advises buyers to weigh whether the size of the vehicle — and the total cost of financing it — really fits their needs.

84 months at 6.9% (Edmunds’ Q1 average rate): a $43,899 loan would cost about $660 per month and roughly $11,575 in interest over the life of the loan.

60 months at 6.9%: the same loan would raise payments to about $867 a month but reduce total interest to approximately $8,132 — about $3,443 less than the 84-month option.

84 months at 13.17% (example for lower credit scores): that $43,899 loan would carry payments near $803 per month and about $23,525 in interest over the loan term.

Those figures illustrate why loan length and interest rate both matter. Longer terms often come with higher rates, and borrowers with weaker credit can face much steeper financing costs.

Depreciation and the risk of being underwater

Another downside of extended loans is the speed at which new vehicles lose value. Kelley Blue Book estimates new cars drop about 20% in value in the first year and roughly 55% over five years. When loan balances outpace that decline in resale value, a buyer ends up with negative equity — owing more than the vehicle is worth.

Rolling leftover balances from a trade-in into a new loan is common: J.D. Power finds roughly one-third of buyers add negative equity to their next loan, and Edmunds reports that about 40.7% of purchases involving negative equity are financed with 84-month loans. That combination can trap owners in higher balances for longer.

What shoppers should consider now

Practical steps can reduce risk: compare shorter and longer loan scenarios side by side, factor in likely depreciation, and get pre-qualified to understand how credit score affects available rates. Remember that a lower monthly payment doesn’t always mean a better deal if it substantially increases total interest or stretches negative equity further.

For buyers focused on the monthly number, alternatives include choosing a less expensive model, increasing the down payment, or shopping for competitive financing. If a seven-year loan is the only way to afford a car, experts suggest pausing to reassess whether the vehicle — not just the monthly payment — is the right fit.

The upshot: longer auto loans are becoming a mainstream response to higher prices, but they carry clear costs and risks that buyers should understand before signing on.