An increasing proportion of new car buyers are choosing long-term auto loans.
President Trump’s auto loan tax credit plan is taking shape
Drivers can deduct up to $10,000 a year in auto loan interest on U.S.-made cars purchased through 2028.
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- More than 20% of new vehicle purchases in Q4 2025 were financed with 84-month terms.
- Consumers are looking to lengthen their auto loans to lower their monthly car payments, but when combined with interest rates, the total cost of financing increases significantly.
According to American personal finance company NerdWallet, the average term of a car loan is “nearly six years.” Over those six years, drivers can accumulate more than $10,000 in interest.
Additionally, a growing percentage of Americans have unusually high car payments, with new Edmunds data showing a record number of buyers committing to monthly payments of $1,000 or more.
According to the automotive research firm, in the fourth quarter of 2025, 20.3% of new car buyers agreed to make monthly payments of more than $1,000. This is the highest percentage ever.
This figure is up from 19.1% in the previous quarter, and continues to rise steadily as vehicle prices soar and borrowing costs remain high.
This trend is not limited to the new car market. Used car buyers also set a new record, with 6.3% paying more than $1,000 per month. This is up from 6.1% in Q3 2025 and significantly higher than the same period last year.
Edmunds analysts said the milestone underscores the economic strain they will face throughout 2025 as many consumers extended loan terms, took out large loans and absorbed higher interest rates to secure cars in a still expensive market.
Some lenders offer car loans for up to 96 months. The main difference between loan terms is the amount of interest that accrues over time. Larger loans also involve paying more interest.
According to NerdWallet, a car loan of just $35,000 with an annual percentage rate of 9% could result in a total interest cost of $12,302. The average price of a new car is closer to $50,000 instead of $35,000.
Disadvantages of an 84-month car loan
Longer car loans have allowed buyers to afford new cars despite rising prices. Not all American car buyers are fully aware of how much additional money they will be paying to qualify for their loan.
For example, the 2026 Toyota RAV4 has a starting price of $31,900 before taxes, fees, and additional costs. If a driver puts down 20%, or $6,380, for a 2026 RAV4, he or she would need a car loan of at least $25,520 to fully cover the cost of the new small SUV.
The average interest rate on a new car auto loan for drivers with a credit score between 661 and 780 is 6.51%. A 48-month auto loan of $25,520 at 6.51% annual interest rate would be $1,661.35 in annual interest, not including additional taxes and fees. Drivers who take out a loan under these terms will pay $6,645.40 in interest before the loan is paid off, bringing the cost of financing a 2026 Toyota RAV4 to $38,545.
If you take out an 84-month loan at the same 6.51% APR, you’ll pay a total of $11,629.45 in interest by the time you pay off the car. That’s an interest rate difference of $4,983.95 over three more years of loan payments, without adding the actual cost of the vehicle itself. With an 84-month auto loan, the total amount financed on a 2026 Toyota RAV4 is $43,529, which is a significant difference from MSRP.
Comparison of new and used car loans in 2026
With new car prices rising, the average monthly payment for a new car being much higher, and drivers opting for longer loan terms, now is not the ideal time to buy a new car without serious planning. Meanwhile, the average auto loan interest rate for used cars is much higher than for new cars, according to U.S. News & World Report. Should car buyers buy a new car or a used model?
Ultimately, interest rates and long-term loan terms can force drivers to pay thousands of dollars more than the vehicle’s purchase price for both new and used cars. In terms of cost performance, used cars are still more advantageous than new cars. Consumer review and news site ConsumerAffairs said, “Significantly more used cars are sold each year than new cars.”
New cars depreciate quickly, losing some of their value and making most models more affordable to consumers. Calculating your total interest costs before signing a car loan can save you thousands of dollars.
