Buying a car has become increasingly expensive, and many consumers are responding by taking out longer loans in an effort to manage their monthly costs.
But extending a loan to seven years or more can end up costing buyers thousands of dollars in additional interest, and make it harder to trade in or sell the vehicle later.
“You don’t want to extend out how long you’re paying for it because you’ll be paying thousands upon thousands of dollars extra in interest,” said Ray Shefska, co-founder of CarEdge.
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For first-time car buyer Allyra Spoerl, finding an affordable vehicle meant carefully weighing all of her options.
“I’m looking at a 2025 Hyundai Elantra or maybe a new one,” she said while shopping for her next car.
Her situation is becoming more common as many Americans face a difficult combination of high vehicle prices and elevated borrowing costs.
“The big thing that sticks out to a lot of clients is that average rates right now through your credit unions can run as high as 7% or 8%,” said Travis Wheeler, a general manager of Jeff Wyler Hyundai.
Record payments, longer loans
Vehicle prices remain near record highs.
According to Kelley Blue Book, the average new vehicle sold for $50,562 in September, just $52 below the all-time record.
At the same time, the average monthly car payment for a new vehicle reached a record $787, prompting many buyers to stretch financing terms further than ever before.
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One in four buyers is now taking out loans lasting 84 months or longer, Edmunds reports.
Long loan terms may reduce a buyer’s monthly payment but can create other financial obstacles such as negative equity which becomes problematic when a buyer wants to trade in their vehicle before the loan is paid off.
“They won’t be able to because there’ll be so much negative equity associated with all that extra interest they’re paying,” Shefska said.
And if the truck, car, or SUV needs a major repair, it may already be out of warranty.
“Most folks won’t have the money it takes to take care of that repair along with taking care of the car payment,” Shefska added.
Could a new car be the better deal?
While many shoppers assume a used car is always the cheaper choice, that is not necessarily true in today’s market.
Some automakers are offering promotional financing rates on new vehicles that can make them more affordable than slightly used models.
“Hyundai offers several models that have 0% for 60 months, 1.9% for 72, including rates as low as 3% on some of our introductory models,” Wheeler said.
Dealerships are also offering year-end discounts on some remaining inventory.
“Historically, automakers tend to offer the largest incentives to customers to help them buy cars in November and December,” Shefska said. “And dealerships are highly motivated to sell cars to hit sales goals.”
Meanwhile, used vehicle prices remain elevated. The average used car was listed for $27,235 in September — the highest average price since late 2022.
“Since COVID, there was a lack of pre-owned inventory available, so right now pre-owned prices are definitely higher than they typically would be,” Wheeler said.
Despite potential financing deals, the monthly payment on a brand-new car is still out of reach for many buyers. Affordability comes down to assessing which vehicle or features you want versus what you really need.
“Because the truth of the matter is — what you need typically is considerably less expensive than what you want,” Shefska said.
Tips for car buyers
Whether you’re shopping for a new or used vehicle, experts recommend getting pre-approved for financing before visiting a dealership.
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Knowing your borrowing costs ahead of time can help you compare offers and avoid taking on a payment that strains your budget.
“Then absolutely refuse to look at anything that is beyond what it is that you can afford,” Shefska said.
For Spoerl, the numbers ultimately favored a new vehicle because of manufacturer incentives, warranty coverage and a lower interest rate.
In today’s market, experts say shoppers should compare both new and used vehicles carefully, while also looking for low-rate financing offers, rebates and year-end discounts that can help lower the total cost of ownership, so you don’t waste your money.
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