The Seven-Year Squeeze: Why Long-Term Auto Loans are the New Industry Standard

In an era where the average price of a new vehicle has soared past $50,000, the automotive industry has turned to a controversial financial tool to keep showrooms moving: the ultra-long-term loan. Once a rarity reserved for luxury vehicles, 84-month (seven-year) and even 96-month (eight-year) loans have become mainstream. Data from late 2025 indicates that 84-month loans now account for approximately 22% of all new-car originations, a record high that reflects a desperate push for monthly affordability in a high-interest-rate environment.

The Affordability Illusion

Lenders and dealerships are increasingly promoting these extended terms to lower the monthly “sticker shock” for consumers. By spreading the cost of a $42,000 loan over seven years instead of five, a buyer might see their monthly payment drop from roughly $800 to under $600.

However, experts warn that this is often an expensive illusion. A longer loan term allows more time for interest to accrue. For instance, a typical $40,000 loan at a 6.5% interest rate costs nearly $10,000 in total interest over 84 months—more than double the interest paid on a 36-month term.

The “Underwater” Trap

The most significant danger of the seven-year squeeze is negative equity, commonly known as being “upside down” or “underwater.” Because cars depreciate rapidly—often losing 20% of their value in the first year alone—a borrower on a long-term plan often finds that their debt decreases much more slowly than the car’s market value.

Current reports show that nearly 28% of trade-ins involve vehicles with negative equity, with owners owing an average of $6,905 more than the car is worth. This creates a cycle of debt; if an owner needs to sell or total the vehicle in an accident, they must pay thousands out of pocket to clear the title.

When to Consider Refinancing

For those already locked into a long-term, high-interest loan, refinancing can be a lifeline. You should consider refinancing your auto loan if:

• Your credit score has improved: If you’ve moved from “subprime” to “prime” (typically above 660), you may qualify for significantly lower rates.
• Market rates have dropped: Even a 2% reduction in your APR can save thousands over several years.
• You are at least 10–12 months into the loan: This gives your credit score time to recover from the initial “hard pull” of the original application.
• You have positive equity: Lenders are far more likely to offer better terms if the car is worth more than the remaining balance.

While the auto industry continues to stretch terms to meet consumer demand, the long-term cost of these “affordable” payments is a growing concern for financial health.

Sources and Links

• Experian: Average Car Payment in 2025
• Edmunds: How Long Should a Car Loan Be?
• Bankrate: Auto Loan Rate Forecast 2025
• JD Supra: Hot News in Creditor-Side Auto Financing
• NerdWallet: 5 Reasons to Say No to Long Car Loans