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As you may or may not be aware, the One Big Beautiful Bill Act (OBBBA) that was signed into law in the summer of 2025 included a provision that allows you to deduct the interest on your auto loan. Here is what I said about it in the post we published a few days after OBBBA passed:
Auto loan interest deduction means up to $10,000 in auto loan interest on newly purchased cars can be deducted through 2028. It’s only temporary, and it’s limited to cars “whose final assembly was in the USA.” This makes buying brand new cars on credit slightly less stupid.
Today, let’s talk about this new provision a little bit more.
Here are a few rules about this that you should keep in mind.
See what I mean? Pretty much all of the brands make something in the US, but it might be as few as one model.
More information here:
Quit Buying Cars on Credit — 15 Reasons to Pay Cash
Don’t Be Car Poor
Admittedly, I’m not a car guy. As an attending, I have driven everything from an $1,850 beater (sold four years later for $1,500) to a $94,000 truck (with the occasional rented supercar). The only car loan I ever had was for a $3,000 Geo Prizm that my parents sold me as a college senior on a 0% interest loan that I didn’t have to pay back until after medical school. I firmly believe that reliable, reasonably safe transportation can be had for $5,000-$10,000 (and a few years ago, I would have lowered that amount as low as $2,000). So, it seems silly to me for anyone to ever have a five-figure car loan.
I am firmly convinced that the reason most Americans are not millionaires is sitting in their driveway. If you buy something that costs an extra $5,000 per year to operate (depreciation, maintenance, insurance, interest, etc.), that adds up (at 8%) to $1.3 million over 40 years.
=FV(8%,40,-5000) = $1,295,282
All of that said, I am completely aware that $5,000 per year of spending should not make the difference between an attending physician who earns $375,000 (the average income) retiring early as a financially independent multi-millionaire and not having the ability to do so. If taking out a car loan for a $60,000 car you drive for a decade is the only thing you “screw up,” you’re probably still going to be fine.
Not really. I mean, do whatever you want. It’s your money and your life. Personal finance isn’t a religion, and you don’t need permission from your pastor to take out a car loan. But this law only makes a car loan slightly less dumb than it was before.
First, it only goes through 2028. At most, you can deduct auto loan interest for only 36 months if you buy a car in January 2026.
Second, most WCIers, at least attendings, still can’t take ANY auto loan interest deduction. It phases out at $100,000 ($200,000 MFJ). If your income is that low, buying expensive cars on credit is a particularly bad idea for you.
Third, if you’re taking my advice and buying a car worth less than $10,000, you’re probably not saving much on your taxes if you have to buy it with borrowed money. Let’s say it’s a $6,000 loan at 5%. The interest on that is $300 per year. If you’re making less than $100,000, you’re probably in the 12% bracket. (You’re probably a resident, too.) That means 12% * $300 = $36. Big whoop. Oh wait. You don’t even get that much of a deduction. Remember, this has to be for a NEW car. Buying a new car when you make less than $100,000 is stupid less than ideal.
Fourth, if you’re buying a fancy new car with a lousy loan, this deduction doesn’t somehow make that smart. Again, let’s assume you can somehow qualify for a 5% interest rate on this new $35,000 Toyota Camry. That’s $35,000 * 5% * 12% = $210 per year. Meanwhile, you’re making monthly payments on a five-year loan of $674. It’s hard to get ahead when most of your disposable income goes to payments on stuff you’ve already bought.
More information here:
My 27-Year-Old Car Will Make Me a Multimillionaire
The Cheapest Way to Own a Car
No, the advice hasn’t changed. It’s still pretty much just as dumb to buy cars on credit as it ever was.
What do you think? Am I completely wrong? Are you or anybody you know going to take advantage of this new OBBBA provision?
James M. Dahle, MD, FACEP, FAAEM is a practicing emergency physician and the founder of The White Coat Investor. After multiple run-ins with unscrupulous financial professionals early in his career, he embarked on his own self-study process to become financially literate. After seeing the benefits of financial literacy in his own life, he was inspired to start The White Coat Investor to assist his colleagues. At the time, there was nobody providing unbiased financial education to doctors at any point in their training. Now, more than a decade later, financial wellness is widely recognized as a critical life skill for all physicians and similar professionals. Dr. Dahle remains committed to the original mission of The White Coat Investor to “help those who wear the white coat get a fair shake on Wall Street.”
He currently serves as the CEO, a columnist, and the host of the podcast. Dr. Dahle is a proud father of 4 children and spends his free time adventuring around the world. If you can’t find him, he is probably hiding in the mountains or desert of his home state of Utah.
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Appreciate the effort to break down the pros and cons and list qualifying vehicles. I don’t think we’ll take advantage of it, although as we begin withdrawals we might qualify.
Although I agree with the whole concept of this post, I still felt the need to point out that I think it defeats the purpose of financial independence or even life if we can’t enjoy it a little by buying brand new cars due to worrying about losing the future value of money spent on this expenditure. Regardless if one is a “car guy” or not.
I mean, we could save even more if we bought used everything; cloth, phones, briefcases, electronics, pots and pans, kitchen utensils, plates, toys, furniture, etc. should we try to live this way in the name of early retirement or financial independence?
Came here to say this. I totally agree. I am financially doing well but I must say, I commute 50mi each day and I previously had a very old car (that did help me gain financially at the time) but upgraded to my “forever” car once it became too hard to drive these distances in a beater.
My mental health IMMEDIATELY improved once I got this nicer, newer car. Driving was easier, more comfortable and commuting no longer became the worst part of my day. Spending up to 1.5 hours a day commuting in a beater can get stressful and be tiring.
I’m still thankful everyday that I can drive my amazing car (3 years later) and that mental health is priceless in my opinion.
I’ve always wanted and planned to have a quality, long term car (Landcruiser, like my mom had which our family still owns 25 years later) and to have one and enjoy it while I feel I need it and want it is worth even more than its admittedly high price. Some things are just worth it.
Long commutes have been repeatedly shown to be the most unhappiness inducing activity in our lives in multiple studies.
I agree with you guys on this point. You guys have thought about cars as a quality of life issue, not as keeping up with the Jones unlike most people who haven’t though about this subject as deeply.
Are there any places within a fifteen minute drive of work that wouldn’t be dangerous or undesirable?
While I’ll admit that you can listen to quite a few podcasts, it seems like a really bad deal to spend 1:40 of your waking hours every work day on a commute to and from work. Worse still, that rush hour commute is the busiest, most stressful time to be on the road. You have to worry about any auto collision along a nominally 50 minute drive causing you to be late for work. You also have a stressful 50 minute drive home after spending all day at work.
I’d rather have a much shorter commute and spend more waking hours with my spouse and kids.
It’s a mortality/morbidity issue too for shift workers. I once had a 45 minute commute (could be longer with traffic) to one site while I was in the military. I don’t know how many times I risked death driving that far home after a night shift but it was more than once.
I agree. Of all the things that I could throw money away on, a good car is worth it.
My commute was only 25 minutes each way, But I agree wholeheartedly that those 50 minutes of commute in a car that you really enjoy driving can really put a positive spin on the rest of the day.
Nobody is saying you can’t buy new cars in this post or anywhere else. Our last two cars and two boats were all bought brand new and custom designed.
We are saying maybe don’t buy it as a resident on a loan while you have a negative $400K net worth if you actually want to have some financial freedom by mid career.
While I do agree with you here, I still must say, I am again financially doing pretty well (40yo, no student loans, only other debt is 2.87% mortgage) but when my car became available quickly, to pay all cash would’ve been nearly impossible and honestly not advised I wouldn’t think. Taking a high interest loan out to get my dream car when on a slightly earlier time frame was worth it to me. I still owe some money but will pay it off later this year 2.5 years early. But again it is worth it and was an easy decision for me.
Taking out loans sometimes is the answer tho admittedly it lengthens time to financial independence it allows me to live a happier life. I can easily pay these notes (even aggressively overpay) but to completely pay it off immediately would create drastic changes to other parts of my financial plans (529s, brokerages, back door Roth, etc).
Am I missing on a few thousand dollars in interest and perhaps not perfectly investing or placing my hard earned income? Maybe. But again, I feel comfortable with it.
This article and others like it seems a little harsh in the “you’re stupid, you have an expensive car with a loan” statements. Or perhaps I’m just feeling a little sensitive today 🤷🏼♂️
“Honestly not advised”? By who? How hard is it for a doc who makes $20-50K A FREAKING MONTH to save up to pay cash for a car? If you can pay the car off in a year, you can save up for it in a year. And you’ll probably appreciate it more. If you do have to use a car loan for whatever reason, make it your last one by continuing to pay on it (into a savings account) after you pay it off so you can pay cash for your next one. This sort of habit/behavior is likely worth millions to doctors over the course of their lives.
People justify wealth-retarding debt all the time by talking about things like “dream car” and “dream house” and “once in a lifetime trip” and so on and so forth. Nobody is saying don’t get those things. We’re saying you can have anything you want but you can’t have everything you want RIGHT NOW. The inability to recognize that adds up over the years until all of a sudden you realize you’re one of those docs who didn’t actually build any wealth during your career and now you HAVE to work when you’d rather not.
But like I said in the article, docs make enough money that they can make a few financial mistakes and still retire as a financially independent multimillionaire. But don’t kid yourself that buying a car on credit isn’t a financial mistake. It is. It just isn’t a very big one when you make hundreds of thousands of dollars every year.
I do think it’s stupid for people to have five (six?) figure car loans. But you don’t have to justify your financial behavior to me. I’m not your money priest. It’s your life and your money. Do what you want. But part of the reason you read this blog is because you’re interested in my opinions about how docs should manage money. So I’m going to continue to give them to you.
I think Dr. Dahle pretty explicitly stated this is just his opinion (in the OP). And of course being that he runs a financial advice platform, optimal financial advice is probably the “bias” you should expect to get, no? It is like attacking the health guru because you want to have dessert more often than is optimal. It’s fine, it won’t be a life changing move in your goal posts, it just isn’t financially optimal. With unsubsidized lending rates on cars in the 4.5 – 13.00% range and the rising cost of vehicle purchase, decreasing quality/longevity, maintenance, and rising insurance premiums it will become increasingly less optimal, in fact. Behaviorally, for the majority of my life, my track record aligns a little more with you — but I acknowledge that WCI is the man, and I have previously exhibited behavior I would describe as weak and pathetic in moments of vehicular temptation. I’m growing.
What a gracious tax break to increase debt slavery among U.S. workers who are failing personal finance. With help like this from our noble representatives in Congress, we don’t need any one who isn’t looking out for our best interests. And when they promote the funny math models to show how much Americans ‘save’ with their legislation, this is the kind of stuff they are counting. Yay for us! Google AI tells me average American consumer debt is over $100k. This feature of the (OBBBA) Orange Baby’s Billionaire Benefits Act doesn’t seem to help average Americans one iota. Our top 4-5 billionaires already increased their combined net worth by over $100 billion in January 2026.
Thanks, Congress!
I love your user name. I’m assuming Endodontist?
Really insightful post—thanks for breaking this down so clearly. I agree that while the new auto-loan interest deduction makes financing slightly less bad, it doesn’t really change the core advice: buying or financing a car just for a tax break usually isn’t smart. Cars are still one of the biggest drags on financial independence, especially for non-physicians—and even doctors can overdo it if they’re not careful. Appreciate the perspective.
I only read the title and immediately heard Jim’s voice in my head say, “Of course it doesn’t make sense to buy a car with debt, don’t be stupid!” I heard that same voice before I financed a car as a new attending. Paid off that car loan within a year and it felt great, wouldn’t finance again.
1)This makes buying brand new cars on credit slightly less “stupid.”
2) so check the list for yours before buying—at least if you’re buying a car with debt like an “idiot”.
3) But this law only makes a car loan slightly less “dumb” than it was before.
Boy, are you smug and self righteous.
I am retired, a multimillionaire and bought a new “fancy” car last month. Five year loan financed at 1.99%.
You would be, to paraphrase your comments above, stupid, idiotic, and dumb, to have paid it in cash. Over 5 years, I’ll take my chances that my “cash” will do a hell of a lot better than 1.99% by being invested in the market.
Okay, let’s say you have $5 million and you just financed a $50K car at 2%. And over the next 5 years you earn 8% on that money, 6% after tax. For ease of calculation, we’ll assume an average of $25K being arbitraged over those 5 years. $25K*1.04^5 = $30,416. Or about $83/year. If you are earning 8% on your $5 million, that $83/year will make up approximately 0.021% of your income. Was that even worth your time filling out the loan paperwork? It wouldn’t be worth mine. But it’s your life. You can spend it however you like.
But if you think it’s worth it for a multimillionaire to try to arbitrage your car loan, where does it stop? Will you try to arbitrage a washing machine loan? A credit card loan on your weekly groceries? How about a pack of gum and a Pepsi at the corner store? At a certain point, it’s just not moving the needle. I would argue you passed that point long, long ago.
And that’s ignoring the behavioral effects of spending borrowed money. Studies I’ve seen suggest people spend something like 15% more with borrowed money than when paying cash. 15% dwarfs 0.021%, but I suppose if you’re trying to trick yourself into spending more so you don’t end up the richest doc in the graveyard that might be wise.
Good review of a topic we have seen here before. I am a car guy with purchases limited not by finances but by a sane spouse. A decade or two ago I almost got a majority of our previously private practice group to purchase a 911 turbo for the doctor on-call to use. At that time being on-call involved hospital rounds and nobody looked forward to that. However I might have taken a few extra shifts if we were able to swing that purchase…Again, sane partners ruled that idea out.
