Here’s a sobering stat: New cars are so expensive these days that 19% of buyers are signing up for a monthly loan payment of at least $1,000. That’s up from just 4.3% in 2019.

What’s more, those who can’t afford such a big bill are increasingly turning to longer-term loans, borrowing for up to seven years instead of the more typical three to five.

In fact, because the average new car now costs over $49,000 — about $10,500 more than it did five years ago — a record share of car shoppers (22%) opted for seven-year auto loans in the second quarter, according to the latest data from Edmunds, the online car shopping guide. And even then, the average monthly payment for a new car was $756.

So what? Fall is a popular time to buy a car because dealerships often offer deals to make room for the following year’s models. And if you’re in the market, you too may need a lengthier loan to give your monthly budget more breathing room. But there are downsides to borrowing for longer that you’ll want to be aware of.

First, the most basic reason: While longer loans cut your monthly payment, they increase your total cost of borrowing, especially now that interest rates for new car purchases are averaging over 7%. If you borrowed $40,000 at 7.2%, you’d pay $11,040 in interest over seven years, rather than $7,749 over five years or $4,594 over three years.

Second, the risk of becoming “underwater” on your loan is higher with lengthier loans — and is already a growing problem. In other words, if you sell or trade-in your car before the term of your loan is up (to make room for a new baby, for instance), you could wind up owing more money than the car is worth. This is because like most mortgages, auto loans are typically amortized, meaning a bigger share of your fixed payment is interest in the beginning and you build equity slowly.

All that said, there are several ways to cut down on interest or offset your costs if you do go the lengthier-loan route. Here’s what you’ll want to consider:

•  Your timing. Tariffs haven’t led to any major price increases on cars… yet. Automakers and dealers have absorbed much of the tariff impact, but that may not last much longer, according to Kelley Blue Book. In the meantime, if the Fed cuts its benchmark interest rate this week, it could bring interest rates down a smidge.

•  Buying an American-made car. Eligible taxpayers can now get a federal tax deduction of up to $10,000 a year on auto loan interest. A provision of the Big Beautiful Bill Act passed earlier this year, this applies to loans taken out between 2025 and 2028 on new American-made cars. It even applies if you don’t itemize your deductions – as long as you meet the income and other eligibility requirements. (A tax deduction doesn’t typically have as much impact as a tax credit, but it does lower your taxable income and in turn, your tax burden.)

•  Buying used versus new. This is a double-edged sword. Used cars are cheaper – averaging about $25,500, according to July data from Kelley Blue Book. But interest rates for used cars are generally higher than they are for new cars, and used cars typically have higher maintenance costs. Plus, right now used cars are in relatively short supply, making the value proposition more complicated. To explore your options, use this SoFi calculator to see how your payments would change under different scenarios.

•  Changing your payment schedule: If you make payments every two weeks rather than once a month, you’ll make 13 rather than 12 payments in a year, shortening your payoff time by one month every year and saving you some interest.

•  Paying extra when you can. If you get an annual bonus from work or a tax refund every spring, consider throwing some of it toward your auto loan to accelerate your payoff. As long as there’s no prepayment penalty, this is a flexible way to nibble a little extra off your balance.

•  Maximizing your trade-in value. If you’re trading in your current vehicle, don’t assume every dealer will make you the same offer. Because of the relatively low inventory of used cars, some dealers may be more competitive than others if they’re in need of your vehicle type. Some of it depends on your negotiating skills, too.

Related Readings

Buying a Car in 2025: There’s More to It Than Tariffs (SoFi)

Take Control of Your Auto Loan (Consumer Financial Protection Bureau)

How to Buy a New Car in Today’s Challenging Market (Consumer Reports)

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