New car prices, now averaging nearly $50,000, are pushing American buyers toward extended loan terms. This trend is costing consumers thousands more in interest over the life of their loans.
According to LendingTree, 34.9% of U.S. car borrowers have loans exceeding six years. These longer terms result in an average additional $8,750 in interest payments.
LendingTree chief consumer finance analyst Matt Schulz noted that extending loan periods is often a necessity to make monthly payments manageable, a concerning practice given how quickly vehicles depreciate.
New Mexico leads the nation, with 45.8% of its borrowers taking out loans longer than six years, incurring an average of $14,811 in interest, compared to $8,570 for shorter loans.
In a related issue, nearly 30% of new car buyers are trading in vehicles for which they owe more than the car's worth. Edmunds.com reports this negative equity trend, where debt is rolled into new loans, can lead to higher future payments and fewer options.