Car prices have increased dramatically in recent years, making affordability a growing challenge for consumers. The result has been longer car loans, as individuals struggle to keep up with higher new car payments.
Longer car loans are bad news for consumers and dealers alike. Not only does it create more financial strain for consumers, but it also complicates trade-ins when they are ready for a new vehicle.
North Carolina Couple Takes on 7-Year Loan
Shirria McCullough purchased a new Honda Pilot in 2023 for $45,000. A seven-year loan accompanied that price. While it would have made the monthly payment lower than a loan with a shorter term, McCullough wasn't comfortable with the thought of her and her husband paying for so long.
Don't Miss:
- Would You Have Invested in eBay or Uber Early? The Same Backers Are Betting on This Vacation Home Platform
- They Sold Their Last Real Estate Company for Nearly $1B — Now They're Building the Future of U.S. Industrial Growth
Instead of accepting the loan as a new reality, they refinanced to a six-year loan but paid it off entirely in June. While they could have put the money toward other causes, they preferred to pay the loan off and wash their hands clean of it.
Car Prices Have Risen Rapidly
Over the past five years, new car prices have increased by 28%, leading to sticker prices of nearly $50,000, on average. Such a steep rise in prices helps explain the increase in term lengths. While it means paying longer, a seven-year loan could reduce the monthly payments from $1,000 monthly payment on a five-year loan to $780.
$780 is also around the national average for a new car payment. According to Experian, the average new car payment was $745 in Q1 2025. Used car payments were much lower at $521. However, used car loans also had much higher interest rates.
Trending: An EA Co-Founder Shapes This VC Backed Marketplace—Now You Can Invest in Gaming's Next Big Platform
Longer Teams Cost Consumers More
Longer terms mean lower monthly payments, but they also cost consumers much more in the long run. For instance, the average interest on a seven-year loan is $15,460, Ivan Drury, director of insights at Edmunds.com, told Bloomberg. That is $4,600 more than the interest on a five-year car loan.
Longer terms generally mean consumers pay more in interest charges over time. The longer you spend making payments, the longer interest accrues. You also aren't reducing your principal as quickly, raising the amount of the interest calculation.
Seven-year loans are costly, though they aren't the most common term, representing 21.6% of new loans. The most common term is six years, accounting for 36.1% of new loans.
See Also: From Chipotle to Red Bull, Top Brands Are Already Building With Modern Mill's Tree-Free Wood Alternative — Here's How You Can Invest Too
Bad for Both Consumers and Dealers
Longer loan terms are not only bad for consumers — they can also hurt dealers. With such long terms, people can be upside-down on their loans at trade-in time. Being "upside-down" on a loan means you owe more than the car is worth.
This complicates the trade-in process because it means consumers would owe money when trading in a vehicle, rather than getting a discount. Given the difficulty this creates, many dealers are frustrated with ballooning term lengths.
Read Next: Dump Your Financial Advisors. One AI Platform Manages Everything — With Zero AUM Fees. Book Your Demo Today.
Image: Shutterstock
