That 7-Year Auto Loan Looks Tempting, But It Could Cost You Thousands More

Five-year auto loans have long been common, but seven-year loans are becoming increasingly popular, making up almost 20% of all new vehicle financing in early 2025. Consider this: The average cost of a new car was $48,699 in April 2025, compared to around $47,510 the month before. By extending the length of a loan, dealers can reduce monthly payments, making more costly vehicles more affordable for buyers.

Although extending the term of an auto loan and lowering monthly payments might seem like a good idea, it’s not necessarily the best personal finance move because you’ll end up paying more overall to finance your vehicle.

Longer Loans May Seem Like a Good Idea, but They Cost More

With the price of new cars going up every year, a seven-year auto loan might seem like a sensible way to make buying a car more affordable. While a longer loan does reduce your monthly payment because it spreads it over a longer time period, you will have paid more by the time you finish paying off the loan and get the title.

Let’s say you want to finance a $40,000 car at 6.5% interest. If you opt for a five-year loan with no money down, you’re looking at a hefty $782 monthly payment. By stretching that to a seven-year loan with no money down, your payments drop to $593 per month.

Factoring in interest, the seven-year loan costs a total of $49,894 and the five-year loan costs $46,958—a savings of nearly $3,000.

This example assumes you can qualify for a great rate. If you don’t have the best credit you’ll end up with a higher APR, and the difference between a five-year and seven-year loan will be even greater.

This example also uses the same APR for the five-year and the seven-year terms, but in many cases lenders charge higher rates for longer terms. So the difference in cost between term lengths will often be greater than shown here.

The Hidden Dangers of a 7-Year Auto Loan

You won’t just be paying more in interest for a seven-year loan. You’ll also be at greater risk of going upside-down on the loan, which means you owe more than your car is worth. This is because cars quickly depreciate in value. By extending the length of your loan, you could end up owing more than your car is worth. Plus, the warranty will eventually expire and you may need to pay for necessary car repairs before the loan is paid off.

Don’t forget that a lot can happen in seven years. While you may be able to afford the initial payments, unexpected life changes like losing your job, moving, or paying medical bills could make it harder to pay for your auto loan years down the line.

Committing to a long car loan can also limit your future financial plans. For instance, you may find it harder to get a good deal when trading in or refinancing your car if you still owe quite a bit and it’s depreciated in value.

Factors to Consider Before Committing to a 7-Year Auto Loan

Before you sign a seven-year car loan (or any kind of car loan), ask yourself the following:

• What is the total amount I will pay over 84 months, and how does that compare to a 48-month or 60-month loan?
• Can I really not afford a shorter-term loan?
• Will I still want this car in 6–7 years?
• What happens if I want to sell or trade early?
• How much will insurance cost for this car?
• Does this make and model of car lose value relatively quickly compared to other cars?

What Kind of Auto Loan Should I Get?

Before you head to the car dealership, check out your credit score. If it needs a bit of work, try to pay down debt and focus on making your payments on time. By boosting your credit score, you can qualify for better interest rates on any auto loan.

Shop around and get pre-qualified for a loan with several lenders. Then, when you’re finalizing the loan, in general it’s wise to:

• Select as short a loan term as you can afford
• Make a large down payment if possible

In the past, buyers tried to follow the 20/4/10 rule, where you’d make a 20% down payment on a four-year loan and spend no more than 10% of your monthly income on transportation. While that may be challenging with today’s car prices, it highlights the importance of a big down payment and a shorter loan term.

The Bottom Line

It’s crucial to understand the drawbacks of a seven-year auto loan when car shopping. To save money on interest (and the overall cost of the loan), opt for a lower loan term and make a big down payment. If you don’t get as favorable loan terms as you’d like, remember that you can refinance your auto loan later if interest rates decrease or your credit score gets better.