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The way Americans finance cars has changed dramatically. Car loans are getting longer and buyers are staying in debt longer. That can create a problem when it's time to buy the next car, especially if they decide to roll the remaining debt into their next car loan. The problem we have is when we are trading in cars after three years and we're underwater with the car that we're trading in now, we're in this element of permanent car debt, right? And that's a really concerning pattern because now that long loan is combined with these trade ins and now it just snowballs. And now individuals are constantly, constantly financing a car.
Today, the average loan term for a new car lasts just over 70 months or almost six years. A loan that long would have been rare for most car buyers a few decades ago. In 1986, the average new car loan lasted only about four years. Initially, someone would say you shouldn't get a 72 month loan. Even 60 month loans have been deemed kind of like, oh, if you can't afford a car over a 3 or 4 years, don't buy one at all. Right? So like some of these older ideas that people have about how you should buy a car, how long you finance it, they do not exist today.
Part of that is because cars have gotten much more expensive than they once were. The average price of a new vehicle reached over $48,000 in 2025, up from around $37,000 in 2019. But another reason is that buyers who still owe money on their old car are extending their next loan even longer. When people are upside down on their existing loan and they need to roll over, say, $5,000, $10,000 because they're kind of behind on payments, the easiest way to make that next car affordable is to tack on a year, tack on two years to whatever loan you're looking at. And this is how we end up with 84 month loans. If you owe more on your auto loan than the vehicle is worth when you trade it in, that gap is known as negative equity,
also referred to as a payment being underwater or upside down. And while the concept isn't anything new, the amount of negative equity that people are carrying has been rising. In the second quarter of 2015 buyers with negative equity were underwater by about $4,600 on average. By the second quarter of 2026, that had climbed to nearly $6,900. And for a significant share of buyers, the hole is much deeper. Today 24% of buyers trading in a car that's underwater owe at least $10,000 more than it's worth. This is something in which you do this once it happens, it's okay, you know a lot of people $1,000, $2,000, no big deal.
Whatever. Just pay off your loan. It's fine. But once you start dipping into that seven, eight, nine, $10,000, you know, upside downness of your current vehicle being rolled into your next one, you might never own the car, ever. More than 40% of buyers rolling negative equity into another vehicle take out an 84 month loan. Their average monthly payment is about $944, and estimates suggest that they could pay more than $16,000 in interest for the duration of the loan. So why do buyers keep taking on these loans? Experts say part of the answer is how we've gotten used to thinking about major purchases as monthly payments. So we're constantly having this bombardment for a new subscription, a new monthly payment or whatnot.
We really aren't rational creatures as human beings, but we're really good at rationalizing. The issue really, is that people separate out the payment more than they do thinking about the larger purchase. So they start to think, well, you know what? I can handle this monthly payment, but you're not really buying a monthly payment. You're buying a larger 50 or 60 or 70 or whatever it is, thousand dollar automobile. So we separate that out and we say, I can make this payment right now, and it'll be in my driveway within two hours and I'm all set, and we'll worry about the other stuff later.
Experts say buyers should look beyond the monthly payment and consider what the car will actually cost them. It isn't about whether you can afford the payment, it's really about whether you can afford the purchase and sitting down and seeing a $50,000 automobile that has 4% or 5% interest rate on it, what is the total amount of that purchase going to be? Because you're going to pay it over the course of that time, and what is it going to come at the expense of? Maybe it's home ownership, maybe it's a master's degree, paying off student loan debt, your kids education, whatever it might be.
It's going to come at the cost of something. So I think it's important for individuals to really take a step back when they're looking at any major purchase like this. Again, not thinking about the monthly payment, but a purchase like this and thinking, where else could this money go? Do I really, really need this? And is this an element of novelty that's going to wear off long before I'm still making those payments? For people like that are kind of in that cycle, this is where I recommend leasing. A lot of people have like negative connotations or thoughts about leasing. They say, oh, I'll never own the car. Well guess what? You turn in a car after 3 or 4 years and you're
upside down on it. You never own that either, but at least with a lease, you turn it in after you've made those payments. You get something new. You start afresh every single time. Longer loans can make an expensive car easier to afford today, but in fact, they're stretching the cost further into the future while adding more interest along the way. And eventually kicking that cost down the road can leave buyers with less room to maneuver.
