Published
Higher vehicle prices and borrowing costs are stretching household budgets, and pushing more buyers toward longer loans and used vehicles. For a growing share of Americans, buying a new car means committing to payments for seven years or more.
Edmunds reported that 25.5 percent of financed new-vehicle purchases carried loan terms of at least 84 months in the third quarter of 2026, up from 21.8 percent a year earlier. Despite those longer repayment periods, the average monthly payment reached $787, compared with $756 in the third quarter of 2025.
Longer loans help fit an expensive purchase into a monthly budget. But they also increase interest costs and extend the time buyers remain responsible for a depreciating asset.
Longer Loans Are Becoming More Common
The shift extends beyond a single quarter. According to Edmunds, 36.5 percent of financed new-vehicle buyers chose terms of 73 months or longer in the second quarter of 2026, compared with 27.3 percent a decade earlier.
Buyers were also contributing less cash upfront. The average down payment fell from $6,433 in the second quarter of 2025 to $5,815 in 2026. Smaller down payments leave more of the purchase to finance, adding pressure to extend repayment.
Vehicle Prices Have Raised the Starting Point
Kelley Blue Book reported an average new-vehicle transaction price of $50,562 in September 2026, close to the record set in December 2025.
The overall average increased just 0.7 percent from a year earlier, but some relatively affordable categories rose faster. Compact-car prices increased 3.2 percent to $27,977, while subcompact SUVs rose 1.5 percent to $31,213.
For historical context, Kelley Blue Book reported an average of $37,590 in September 2019. These are nominal figures, and the older release excluded applied consumer incentives, so they should not be treated as a precise measure of inflation for an identical vehicle. Changes in the mix of cars, trucks, SUVs, and equipment also affect the average. Nevertheless, the figures illustrate the much higher dollar amounts facing today’s shoppers.
Higher Interest Rates Compound the Price Problem
Edmunds’ figures show how financing has changed since the low-rate period:
| New-vehicle financing measure | Q3 2021 | Q3 2026 |
|---|---|---|
| Average amount financed | $37,479 | $44,664 |
| Average APR | 4.4% | 7.0% |
| Average monthly payment | $614 | $787 |
The 2021 release described its figures as quarterly estimates. Dollar amounts are not adjusted for inflation.
That represents approximately 19 percent more borrowed and a 28 percent higher monthly payment, based on the published figures.
Importantly, interest rates do not have to keep rising for borrowing costs to increase. Edmunds’ average new-vehicle APR held at 7 percent between the third quarters of 2025 and 2026, while average scheduled lifetime interest rose from $9,442 to $9,938. Larger balances and longer repayment periods contributed to the increase.
What Extending a Loan Actually Costs
Consider an illustrative $40,000 loan at a fixed 7 percent interest rate:
| Loan term | Monthly payment | Total interest |
|---|---|---|
| 48 months | $958 | $5,977 |
| 60 months | $792 | $7,523 |
| 72 months | $682 | $9,101 |
| 84 months | $604 | $10,711 |
Calculations assume monthly amortization, no additional fees, and payments made as scheduled. Actual offers may charge different rates for different terms.
Extending the loan from five years to seven cuts the monthly payment by approximately $188, but adds about $3,188 in interest.
Interest rates matter separately. At an illustrative 4 percent, the same $40,000 five-year loan would cost approximately $737 per month and $4,200 in interest. At 7 percent, it costs about $55 more each month and $3,323 more in total interest.
A longer term can make the payment manageable without making the vehicle less expensive.
Used Cars Offer Relief—but Face Their Own Pressures
Expensive new vehicles encourage shoppers to consider used alternatives. Recent data support continued demand, although the market is not accelerating uniformly.
Cox Automotive reported that the retail used-vehicle sales pace was 2 percent higher in September 2026 than a year earlier, even as it declined seasonally from August. The average advertised used-vehicle price reached $27,235, approximately 6 percent above a year earlier and the highest monthly level since December 2022. These are listing prices, rather than final transaction prices.
The least expensive inventory remained particularly scarce. Vehicles priced below $15,000 accounted for 15.7 percent of used inventory, down from 19.4 percent a year earlier. Their supply declined 16.2 percent, limiting choices for buyers seeking the greatest savings.
Used vehicles also tend to carry higher financing rates. Experian’s second-quarter 2026 data showed:
| Financing measure | New vehicles | Used vehicles |
|---|---|---|
| Average loan amount | $43,610 | $27,852 |
| Average interest rate | 6.35% | 11.19% |
| Average monthly payment | $765 | $542 |
| Average term | 69.5 months | 67.9 months |
Experian and Edmunds use different datasets; their averages should be compared within each source.
Used buyers borrowed substantially less, but higher rates reduced the payment advantage. They also committed to nearly six years of payments, potentially overlapping with the vehicle’s more expensive maintenance years.
The Risk of Owing More Than the Car Is Worth
Long repayment periods slow the reduction of principal. Meanwhile, the vehicle continues to lose value.
The Consumer Financial Protection Bureau warns that longer loans can leave borrowers with negative equity—owing more than the vehicle is worth—for longer periods. If a buyer trades in before paying off that balance, rolling the shortfall into another loan increases the next purchase’s borrowing costs.
This can create a cycle: an expensive purchase leads to a longer loan, a later trade-in carries unpaid debt, and the next loan starts with an even larger balance.
For buyers, the essential comparison includes the purchase price, amount financed, APR, total interest, and expected ownership period. Insurance, maintenance, and repairs also need room in the budget.
Seven-year financing can ease immediate cash-flow pressure. The tradeoff is a longer financial commitment, and often thousands of dollars more paid for the same vehicle.