More new-car shoppers are taking on seven-year loans, a trend that underscores the rising cost of financing a vehicle.
Auto loans with terms of seven years or longer made up 22% of all new vehicle financing in the third quarter of 2025, Edmunds reports, close to an all-time high.
The average new-car customer borrowed $42,647 in the third quarter, at an annual interest rate of 7%, for an average monthly payment of $754. Nearly one-fifth of new-car buyers now pay at least $1,000 a month.
Car loans have grown steadily longer in recent years, as buyers labor to keep pace with rising prices. Nowadays, a car buyer seems to have as many financing options as a homebuyer.
The Trump administration floated the idea of 50-year home mortgages on Nov. 9, touting them as a pathway to lower monthly payments.
But cars and homes are very different assets. Homes tend to appreciate. Cars mostly depreciate.
“It’s not money that you get back. It’s not equity that you have in the car,” said Brian Moody, executive editor of Kelley Blue Book and Autotrader, speaking to USA TODAY earlier this year.
Here’s another worrisome trend: Many cars are losing value at a faster pace than the borrower repays the loan. You wind up owing more than the auto is worth, a predicament known as being “underwater” or upside-down on the loan. The longer your loan, the greater the risk of slipping underwater.
An old rule of thumb in car-buying, known as 20/4/10, held that you should make a 20% down payment, cap your loan at four years, and spend no more than 10% of your monthly income on transportation.
Decades ago, three- and four-year car loans were standard.
In the early 2000s, a five-year term “was kind of the sweet spot” for car loans, said Joseph Yoon, consumer insights analyst at Edmunds, speaking to USA TODAY earlier this year. Yoon’s own family took out a five-year loan in 2004.
“Now, 20 years on, it seems that sweet spot has become six years,” Yoon said, “with many people opting for seven years or longer.”
Today, only 10% of new car buyers choose loans of four years or less, Edmunds reports.
The average new car cost $50,080 in September, a record high, according to Kelley Blue Book.
Interest rates have soared in that span. The average rate on a five-year new-car loan drifted from 5% in August 2020 to 7.6% in August 2025, according to Federal Reserve data.
Auto buyers typically choose a longer loan term because a longer loan term means lower monthly payments. Dealer negotiations often pivot on finding the right monthly payment, rather than the lowest sale price or interest rate, because the monthly sum is easier to digest.
“The only reason why you would extend out a loan term seven, eight years,” Yoon said, “is because you went to the dealership with a certain budget in mind, you picked out a car, and then the salesperson, the finance person, throws a number at you that you cannot afford.”
But the length of the loan profoundly affects the interest you pay, potentially jacking up the total cost of the transaction.
Here’s an example, offered by Consumer Reports, for a $40,000 auto loan at a 7% interest rate.
With a four-year loan, you face a steep monthly payment of $958, but you cap your total interest at $5,977 over the lifetime of the loan.
Bump the loan up to five years, and you trim your monthly payment to $792. But now, you pay $7,523 in interest.
With a six-year loan, your monthly payment falls to $682, but your interest rises to $9,101.
And with a seven-year loan, your monthly payment slips to $604. And now, you’re paying $10,711 in interest.
“Yes, your monthly payment is important,” Yoon said. “But with interest rates as high as they are, with a six-year loan, with a seven-year loan, with an eight-year loan, that’s five figures of interest that you’re going to pay.”
Longer loans at higher rates are pushing more customers underwater.
One-quarter of customers who traded in used vehicles for new ones in the last three months of 2024 owed more than the trade-in was worth, according to Edmunds. The trade-in effectively raised the price of the new car.
“If you’re underwater when you want to trade it in, that’s going to be a problem,” said Chuck Bell, a financial policy advocate at Consumer Reports, speaking to USA TODAY earlier this year.
With a used vehicle, the numbers can look even worse.
The average used car sold in August 2025 had already been driven 72,557 miles, according to Cox.
A typical five- or six-year-old car has already lost more than half of its value through depreciation. If you finance an aging vehicle for seven more years, “halfway through the loan, your car’s not going to be worth anything,” Yoon said.
Here, from the experts, are a few questions to ask before you take out a seven-year car loan:
The more you put down on an auto purchase, the less you have to finance. With a larger down payment, a buyer may be able to afford the monthly payments on a shorter-term loan.
Your down payment “goes straight to the bottom line,” Bell said.
Before you commit to a seven-year car loan, consider how the monthly payments will impact your budget over those years, including housing payments, other debt and unexpected expenses.
A big risk, with a seven-year car loan, is owing more than the vehicle is worth. But if you plan to keep the car until the loan is paid off, your negative equity will eventually melt away.
“If you like to keep your cars for a long time,” Yoon said, “then ultimately it doesn’t matter.”

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