Rising Car Prices Lead to Increase in Seven-Year Auto Loans

What's Happening?

The Los Angeles Times reports that the increasing cost of cars is pushing buyers to opt for longer loan terms, with seven-year loans becoming more common. The average sale price of new vehicles has surged by 28% over five years, nearing $50,000. This trend is making it difficult for consumers to afford new cars without extending their loan terms. In the second quarter of 2025, seven-year loans accounted for 21.6% of all new-vehicle financing, while six-year loans became the most common, representing 36.1% of loans. The longer loan terms help reduce monthly payments but add significantly to the total cost of the vehicle.

Why It's Important?

The shift towards longer auto loans reflects broader economic challenges, including rising vehicle prices and financial strain on consumers. While these loans make monthly payments more manageable, they increase the overall cost of ownership and can lead to negative equity situations where borrowers owe more than the car's value. This trend could impact the auto industry by delaying repeat purchases and affecting dealership sales cycles. It also raises concerns about consumer debt levels and financial stability, potentially influencing lending practices and economic policy.