Underwater auto loans are becoming a growing concern in the US, as more buyers stretch financing terms to keep monthly payments manageable. New data cited in the source report shows that 58.5% of borrowers currently owe more on their vehicles than the cars are worth, while long-term loans continue to hit record levels.
Monthly car ownership costs have climbed significantly in recent years. According to the report, median monthly car payments have increased from $390 in 2019 to $525.
Despite that jump, major lenders do not appear to be pulling back. New car loan approvals were higher in April than in March, suggesting that lenders remain comfortable with current borrowing trends.
Sanjiv Yajnik, President of Capital One Auto, told CNBC that he is not highly concerned about rising consumer auto debt. His argument is that the payment-to-income ratio has remained broadly stable across income groups.
According to Yajnik, vehicle payments still account for roughly 10% of income across salary brackets. He also said that around 80% of customers who finance vehicles remain below the commonly watched 15% payment-to-income danger threshold.
From the lender’s perspective, that suggests consumers are still borrowing within manageable limits. But for buyers, the way those lower monthly payments are achieved can create a different problem.
To make increasingly expensive vehicles feel more affordable, many buyers are accepting longer loan terms. These loans can reduce the monthly payment, but they also increase the amount paid in interest and raise the risk of negative equity.
Loan terms longer than six years are becoming more common. According to Cox Automotive data cited in the report, loans exceeding 72 months reached a new record in April 2026, accounting for 29.7% of auto loans. That was up roughly 470 basis points from a year earlier.
The bigger warning sign is negative equity. The report says 58.5% of borrowers are currently underwater on their auto loans. That figure has eased slightly from a recent record, but it remains nearly 540 basis points above the year-earlier level of 53.1%.
In simple terms, being underwater means a buyer owes more on the loan than the vehicle is currently worth. This can become a serious issue if the owner needs to trade in, sell or replace the car before the loan is paid off.
The source report uses a $30,000 vehicle and a 9% APR as a baseline example. With a four-year loan, the buyer would pay around $5,105 in interest, bringing the total cost to $35,105. The monthly payment would be about $731.
With a six-year loan, the monthly payment drops to around $525, but total interest rises to approximately $7,818. That brings the total cost to $37,818.
An 84-month, seven-year loan lowers the monthly payment further to about $467, but the interest cost rises to roughly $9,226. By the end of the term, the buyer would have spent about $39,226.
Seven-year auto loans may look attractive because of the lower monthly payment, but they can leave buyers exposed for a long time. A vehicle continues to depreciate while the loan balance falls slowly, which increases the risk of owing more than the car is worth.
That can create a cycle where a buyer rolls negative equity into the next loan, making the next vehicle even more expensive to finance. Longer loan terms also overlap with the period when maintenance costs may begin to rise, adding another financial burden on top of loan payments, insurance, fuel and other running costs.
The latest data shows that affordability pressure in the US car market is not just about vehicle prices. Longer loans are helping buyers manage monthly payments, but they are also increasing total interest costs and pushing more owners into negative equity.
For lenders, stable payment-to-income ratios may make the trend look manageable. For consumers, however, the growing use of six- and seven-year loans means a lower monthly payment can come with a much higher long-term financial risk.
