Core Insights - The trend of new-car shoppers opting for seven-year loans is increasing, reflecting the rising costs of vehicle financing [1][2][10] - The average new-car loan amount has reached $42,647 with an interest rate of 7%, leading to monthly payments averaging $754 [1][6] - A significant portion of new-car buyers, nearly 20%, are now paying monthly payments of at least $1,000 [1] Financing Trends - Auto loans with terms of seven years or longer accounted for 22% of all new vehicle financing in Q3 2025, nearing an all-time high [1][5] - The average cost of a new car hit a record high of $50,080 in September 2025, contributing to the trend of longer loan terms [6] - Historically, shorter loan terms were more common, with only 10% of new car buyers now choosing loans of four years or less [5] Interest Rates and Payments - The average interest rate on a five-year new-car loan increased from 5% in August 2020 to 7.6% in August 2025 [6] - Longer loan terms result in lower monthly payments, which can lead buyers to prioritize monthly affordability over total loan costs [7][8] - For example, a $40,000 loan at 7% interest results in significantly higher total interest payments as the loan term increases [9][10] Underwater Loans - The risk of being "underwater" on loans is rising, with one-quarter of customers trading in used vehicles owing more than their trade-in value [11] - The depreciation of vehicles, especially older models, exacerbates the issue of negative equity for buyers financing over longer terms [12] - Experts suggest considering larger down payments and the long-term ownership of the vehicle to mitigate risks associated with seven-year loans [12][15]

Core Insights - The automotive industry is experiencing significant stress, with a rising number of Americans trading in vehicles that are worth less than what they owe, indicating financial strain among consumers [2][4]. - The average age of cars on the road has surpassed 12 years, as buyers are increasingly turning to used cars or holding onto older vehicles due to the decline in budget models and rising new car prices [1][6]. - The average new car price has exceeded $50,000 for the first time, reflecting a more than 25% increase over the past five years, driven by the popularity of expensive trucks and SUVs [5]. Trade-In and Debt Situation - Over 28% of trade-ins for new car purchases carried negative equity, the highest level since Q1 2021, with the average amount owed on these underwater loans reaching a record high of $6,905 [3]. - The high levels of debt associated with trade-ins are raising alarms, as consumers are struggling with affordability amid rising costs and interest rates [4][7]. Loan Trends and Consumer Behavior - Consumers are extending the length of their auto loans to seven years or more, with the average monthly payment for new cars hitting $766, the highest in 15 months [6]. - Auto loan delinquencies and repossessions have surged this year, exacerbated by high interest rates and the financial choices made during the pandemic when vehicle prices were inflated [7].

Core Insights - A significant increase in the number of Americans trading in vehicles with negative equity has been observed, with 28.1% of trade-ins in Q3 2025 being underwater, marking a four-year high [1][2] Trade-In Trends - The average negative equity for Americans with underwater car loans reached a record $6,905 in Q3 2025, up from $4,200 in the same period of 2021 [2] - Among those trading in vehicles with negative equity, one in three owed more than $5,000, and roughly one in four owed over $10,000, both figures being record highs [2] Consumer Behavior - Many motorists are opting to trade in their vehicles with negative equity rather than waiting to pay down their loans, indicating a trend towards immediate gratification in vehicle ownership [3] - The average age of trade-ins with negative equity is reported to be 3.7 years [5] Financial Environment - The average interest rate on a 60-month new car loan was 7.6% in August 2025, a significant increase from 4.6% four years prior, contributing to the financial strain on consumers [4] - Used vehicle prices have decreased by approximately 15% from early 2022 to August 2025, further complicating the financial landscape for car buyers [4] Loan Dynamics - The trend of longer car loans is increasing, with seven-year loans comprising 22.4% of all new vehicle financing in Q2 2025, an all-time high [7] - Rolling negative equity into a new car loan results in higher average payments, with trade-in buyers with negative equity averaging $907 compared to the industry average of $767 [9] Recommendations for Consumers - Experts suggest that consumers can mitigate negative equity by making larger payments, refinancing for lower rates, or simply holding onto their vehicles until the loan balance is paid down [16][17][19]

Core Insights - A significant number of car owners are currently underwater on their auto loans, meaning they owe more than their vehicles are worth [1][2] - The percentage of underwater trade-ins for new vehicles has reached 26.6% in Q2 2025, an increase from 26.1% in Q1 2025 and 23.9% in Q2 2024, marking the highest level since Q1 2021 [1] - The average amount owed by Americans with upside-down car loans has risen to $6,754 in Q2 2025, up from $6,255 in the same period last year, although it is slightly lower than the $6,880 recorded in Q1 2025 [2] Industry Trends - Affordability pressures are increasing due to elevated vehicle prices and higher interest rates, exacerbating the negative impact of early trade-ins or rolling debt into new loans [2][3] - The introduction of a tax deduction for vehicle loan interest, applicable to new vehicles assembled in the U.S., may not significantly alleviate the financial burden caused by higher interest rates [4]