The average price for a new car in the U.S. has hovered near $50,000, creating affordability challenges for many buyers. With the average new-car loan rate at 7% and used-car loans approaching 11%, financing a vehicle has become more expensive than ever, according to NerdWallet.
To manage monthly payments, more consumers are turning to long-term loans, with 84- and even 96-month agreements becoming increasingly common. However, experts from Consumer Reports warn that extending loan terms carries significant financial risks.
Rapid Depreciation Increases Risk of Negative Equity
Cars can depreciate faster than the loan balance is paid down, leaving owners “upside down” on their loans—owing more than the vehicle is worth. If a car is stolen or totaled, this can result in major financial loss unless gap insurance is purchased.
Chuck Bell, programs director for advocacy at Consumer Reports, advises buyers to remain conservative when purchasing a vehicle. “The traditional 20-4-10 rule—20% down payment, 48-month loan, and no more than 10% of household budget on vehicle expenses—provides a more sustainable approach,” he said. Today, car-related expenses can consume up to 20% of a household’s budget, according to MarketWatch.
Negative equity is common. Edmunds reported that over a quarter of new-car sales in Q2 2025 involved trade-ins with outstanding debt. While manageable while owning the vehicle, it can create financial strain when trading in or in the event of an accident.
Why Consumers Choose Longer Loans
Rising vehicle prices have forced many buyers into extended loan terms. Alain Nana-Sinkam, head industry analyst at TrueCar, notes that with the average car on the road now over 12 years old, long-term loans could technically work if the vehicle is kept for many years. However, this scenario is rarely straightforward.
“Long-term loans don’t reduce the overall cost of ownership,” Bell explained. “Monthly payments may feel manageable, but household budgets can be stretched thin, especially as prices and interest rates rise.”
Long loans also increase the risk of negative equity if payments are deferred or delayed, since vehicles continue to depreciate even when the borrower isn’t paying.
Who Is Opting for Long-Term Loans?
Nana-Sinkam identifies two types of buyers drawn to low-interest, long-term loans: “buy and hold” shoppers who intend to keep their vehicle for many years, and “monthly payment” shoppers who must prioritize immediate affordability. Many Americans lack savings for emergencies, making them reliant on stretched-out financing despite understanding the risks.
Bell emphasizes the importance of conservative budgeting and planning for total vehicle costs, not just monthly payments. “Unless buyers can make a substantial down payment, super-long loans are likely to result in owing more than the car’s value for years,” he said.
Practical Tips for Long-Term Vehicle Ownership
Before committing to a long-term loan, consumers should test-drive 3- or 4-year-old versions of the vehicle to assess long-term satisfaction. Consulting Consumer Reports’ reliability data and reviews can guide smarter purchase decisions.
Consumer Reports members can also access the Build & Buy Car Buying Service at no extra cost, allowing them to compare vehicles, view real-world pricing, customize payments, and receive offers from certified local dealers. Members can even get instant trade-in valuations to offset new car costs.
Buying a car is one of the largest household expenses, and experts stress that taking the time to evaluate long-term financial impacts is critical for avoiding negative equity and unsustainable debt.
