Soaring car prices push auto loans toward 10-year terms

U.S. car buyers are increasingly turning to much longer loan terms as vehicle prices climb. New and used car costs have risen over recent years, and with interest rates higher than a few years ago, many consumers and lenders are stretching finance agreements to eight, nine or even ten years to keep monthly payments manageable.

Longer-term financing reduces monthly outlays, which makes higher sticker prices more accessible to households trying to balance tight budgets. Lenders, for their part, have broadened term offerings to win business and mitigate short-term payment shocks. The trade-off is significant: extended maturities lower monthly payments but increase the total interest paid over the life of a loan and elevate the likelihood of negative equity, where borrowers owe more than the vehicle is worth.

This dynamic affects both new and used markets. Higher-priced new models and a still-robust demand for used vehicles have kept overall transaction values elevated. For subprime borrowers or buyers of premium models, longer terms are particularly common as dealers and finance companies try to align monthly payments with borrower affordability.

Industry observers warn of potential risks. Longer loans can hide the true cost of ownership and delay turnover, which influences resale markets and can strain household finances if income growth stalls or unexpected expenses arise. Lenders also face credit-quality risk if borrowers default after accumulating large principal balances. Regulators and consumer advocates have flagged the importance of clear disclosures so buyers understand cumulative interest and the impact of extended terms on total borrowing costs.

Consumers considering extended auto loans should compare finance offers, calculate total interest costs across different terms, and factor in resale projections. Alternatives such as larger down payments, certified pre-owned purchases, or shorter terms with slightly higher monthly payments can reduce long-term costs and risk.

As vehicle pricing pressures persist, longer auto-loan terms are likely to remain a fixture of the market. Policymakers, lenders and consumer groups will continue weighing how best to balance access to financing with protections against rising household debt and long-term negative equity positions.