As the cost of new vehicles has risen sharply in recent years and interest rates remain high, more and more car shoppers are opting for longer loan terms to help reduce monthly payments. In Q1 2025, a whopping 19.8 percent of new car shoppers opted for an 84-month loan, in fact, which was a new record. Trouble is, many those same customers are also upside down on their loans, as 26.6 percent of trade-ins on new car purchases in Q2 2025 had negative equity – the highest such share on record since Q1 2021. Regardless, that isn’t stopping the trend of taking out longer loans.
According to Bloomberg, seven-year (84-month) loans grew in popularity yet again in Q2 2025, representing 21.6 percent of all new vehicle financing. At the same time, six-year or 72-month loans have become the norm, accounting for 36.1 percent of new loans across the second quarter of the year. Some car shoppers are even signing up for eight year terms, though those only represent a tiny fraction of the overall market – at least, for now, at less than one percent.
At the same time, shorter terms are on the decline – five-year terms accounted for 19 percent of new vehicle financing, while four years came in at six percent and three years at four percent. Trouble is, many consumers don’t consider the downsides of these longer loans. One of the biggest pertains to the fact that they’re paying more over the course of the loan, with the average interest paid on an 84-month loan coming in at $15,460 – $4,600 more than the average five-year loan.
“People get wrapped up in thinking, ‘I can afford this right now, and things will get better for my situation, which will make this more affordable,’” said Ivan Drury, director of insights at Edmunds.com. “But while your monthly payments stay the same, your other costs can be variable. And that’s where it can get dangerous, if there’s more inflation once we see tariff costs come through.”
Comments
Slowly killing the new vehicle market. Those with 7 year loans will be upside down for several years or more. Automakers just don’t get it. Yet.
They’ll be upside down for a while for sure… But have you checked out prices on used cars?
Consumers signing 7 year loans don’t get it. Needing a 7 year loan to buy a vehicle means you cannot afford the vehicle. If these consumers would stop being stupid and walk away, then vehicle prices would be forced to come down. The sellers will continue to gouge as long as they can get away with it, simply because the sellers don’t care whether or not what they sold gets repossessed. The sellers already got their money and repossessed is not their problem, well, until everything crashes and they can no longer can sell anything.
The lenders should not be allowing these 7 year loans either. But the lenders also don’t care whether the consumer can make the payments either when the lender can guarantee down payment + collected money + resale of the repo’d vehicle meets or exceeds the amount loaned.
The last time I bought a new car was 1998, so I may be a bad example. Still, I took out a five-year loan and paid it off very early. Buy used, people, as long as good used cars are available.
one of the biggest problems is that many people, especially young families, seem to think they need a vehicle as big as a cruise ship so that their family is “safe” . Car makers capitalize on that and here is the result. When my first son was born, our family car was a 1983 VW GTi. Here is the dirty little secret. Young kids are small creatures and as such take up very little room. When son #2 came along, i moved up to a Subaru turbo RX 4 door sedan with AWD. Amazing fact. We all survived and thrived in smaller vehicles. We did not need the Exxon Valdez to keep us “safe” (thats a fallacy BTW, the huge trucks and SUV’s roll over at a much higher rate than smaller vehicles). Borrowing money for a depreciating asset is never a good idea. I drove cheap used cars for many years that i paid cash for. My last vehicle was a 2 year old Toyota hybrid that i was able to pay cash for (it was a small car, not an SUV or truck). I drive it for 8 years and every month a put a “car payment” in the bank. As a resulkt, when i retired in 2024 I bought a new Maverick and wrote a check for it from the 8 years of money i saved. Live within your means and don’t spend 50K or more on vehicles.