True cost of a car loan: 72 vs 84 months

A monthly car payment answers one question: can this fit into a monthly budget? It does not answer what the car costs. The total cost of a car loan depends on the amount financed, the APR, and the number of months, and owning the car adds costs the loan never mentions.

The loan arithmetic and the distinction between cash flow and economic cost apply across currencies. The market statistics below are US case studies, with Canadian consumer guidance explicitly identified. Dollar amounts here are USD unless Canadian dollars are named; they are not global vehicle-price benchmarks. Examples exclude taxes and fees. Local rates, consumer rights, taxes, and ownership costs require local evidence.

Why the monthly payment gets the attention

The monthly payment is immediately visible in a household budget. But different combinations of vehicle price, down payment, trade-in value, loan term, and interest rate can produce a similar payment. Comparing only that number hides which variable changed.

A lower payment can come from borrowing less, obtaining a lower interest rate, or spreading repayment over more months. Borrowing less might reflect a lower price, a larger down payment, or a trade-in; the payment alone cannot distinguish them. At the same principal and rate, a longer term reduces the payment while increasing total interest. The FTC’s guide “Financing or Leasing a Car” (2022) cautions against evaluating the deal solely by its monthly payment. Canada’s Financial Consumer Agency (FCAC, 2025) similarly advises looking at the total cost, not just the payments or the interest rate.

How a longer loan lowers the payment

Take one example loan: $40,000 financed at 6.9% APR. Only the term changes.

Moving from 48 to 84 months lowers the payment by about $354 a month, but it adds $4,660 in interest, about 79% more. Same car, same rate. The only change is time, and interest accrues for every extra month the principal is outstanding. Our guide to borrowing costs explains the same relationship in general terms.

Long terms are now common in the US. According to Edmunds’ Q3 2026 data, a record 25.5% of financed new-vehicle purchases had terms of 84 months or more, and the average new-car loan ran 70.5 months. Experian reported that 35.55% of new-vehicle loans in Q1 2026 had terms longer than 72 months, up from 30.83% a year earlier.

Payments remain high even with the longer terms. Edmunds’ Q3 2026 figures show an average amount financed of $44,664 for new vehicles, an average APR of 7.0%, and an average monthly payment of $787. A record 21.2% of new-car buyers who financed committed to $1,000 or more a month, and 69% of those chose terms of 72 months or longer.

Used cars follow a similar pattern. For Q3 2026, Edmunds reported an average used-vehicle amount financed of $30,703 at 10.6% APR over 70.4 months, with an average payment of $582. Across all financed new vehicles, Edmunds put the average total interest over the life of the loan at a record $9,938 in Q3 2026.

Same payment, different total cost

Now compare two different cars whose payments are almost identical. Car B costs $8,000 more, and its longer loan carries a higher assumed rate. The FTC notes that longer-term loans “may have high rates.” The 9% here is an example assumption, not a market average.

On the monthly line, the two look interchangeable. Over the full loan, Car B costs $16,531 more: $8,000 from the higher price and $8,531 from extra interest, spread across 24 additional payments. The longer term does not make the pricier car cheaper. It spreads the cost so the payment stops signaling the difference.

Negative equity: owing more than the car is worth

Look at both loans after 60 payments. In this example, you would have paid about $41,500 toward each car. Car A is paid off. Car B still has a balance of about $15,100.

Meanwhile, the car loses value. iSeeCars’ 2026 study of five-year-old used cars put average five-year depreciation at 41.8%. If Car B tracked that average, it would be worth roughly $25,000 after five years, assuming the price equaled the amount financed. Earlier in the loan, the picture can flip. In a separate hypothetical scenario, assume Car B loses 20% of its $43,000 purchase value in year one. It would then be worth $34,400 while the example loan balance is about $38,400. That depreciation assumption is illustrative, not a forecast or a measured first-year average.

Owing more than the car is worth is called negative equity, or being underwater. It matters when plans change and the car needs to be sold or traded before the loan ends. Canada’s FCAC explains that selling or trading an underwater vehicle can leave a gap that still needs to be repaid.

If a lender finances the shortfall in the next loan, the debt follows the borrower. Illustrative example: $40,000 borrowed at 7% over 72 months costs about $682 a month. Adding $5,000 of old debt raises the principal to $45,000 and the payment to about $767, with the same rate and term. These are assumed loan amounts, not market averages; taxes and fees are excluded.

The FCAC’s page on the financial risks of buying a car (2025) describes long-term loans as 72 months or more and walks through a similar negative-equity example in Canadian dollars.

The cost of owning a car beyond the loan

The loan is only part of the cost of owning a car. AAA’s “Your Driving Costs” 2026 puts the average cost to own and operate a new car at $12,863 a year, or $1,071.92 a month, based on 15,000 miles a year over five years. That is more than Edmunds’ Q3 2026 average new-car payment of $787.

AAA’s 2026 breakdown shows where the money goes:

• Depreciation: $4,422 a year, the largest single cost
• Insurance (full coverage): $2,098 a year; other published estimates vary by source
• Fuel: 17.3 cents a mile
• Maintenance, repair, and tires: 11.7 cents a mile
• Finance charges: $1,184 a year (AAA assumes a five-year loan with 15% down)
• License, registration, and taxes: $802 a year

The vehicle type matters. AAA’s 2026 figures range from about 62 cents a mile for a small sedan to $1.10 a mile for a half-ton pickup at 15,000 miles a year. Depreciation also varies: iSeeCars’ 2026 study found trucks lost 34.2% over five years on average and electric vehicles 57.2%, and 18 of the 25 worst-depreciating models were luxury brands.

None of this appears in the payment. When the payment stays the same but the car gets bigger or pricier, the cost of running it often rises, as AAA’s vehicle-type figures show. A dependable emergency fund is one way people plan for repairs that a budget built around the payment alone may miss.

Cash paid and economic cost are different measures

Loan payments include principal, which pays for the vehicle itself. Depreciation measures the loss in that vehicle’s value. Adding the full purchase price and depreciation together would count part of the same cost twice.

A simplified economic cost over a chosen holding period is: purchase price minus resale value, plus financing interest and running expenses. A cash-flow budget instead tracks the down payment, loan payments, and expenses as they occur. If the car is sold before the loan ends, the remaining loan balance must also be settled.

For example, assume a car is bought for $30,000, later sold for $18,000, and incurs $3,000 of financing interest and $10,000 of running costs over that period. Its simplified economic cost is $30,000 − $18,000 + $3,000 + $10,000 = $25,000. These figures are assumptions, exclude taxes and fees, and are not a forecast of resale value.

Dealer rate markup and add-ons

In the US dealer-arranged financing model described by the CFPB, a lender quotes the dealer a rate called the buy rate. The CFPB (2024) explains that a dealer can offer a higher rate, and states: “just like the price of the vehicle, the interest rate is negotiable.” The FTC adds that the APR negotiated with the dealer usually includes an amount that compensates the dealer for handling the financing.

Add-ons such as extended warranties, GAP coverage, and credit insurance can be useful in some situations. The US CFPB (2024) explains that these products generally cannot be required in its jurisdiction; this is not a worldwide rule. When add-ons are financed, they accrue interest for the whole term. A slightly higher rate or a few products can barely move the payment, especially if the term is extended at the same time.

The rate offered can depend on credit history; our guide to credit scores and reports explains the basics. For how APR differs from other rate figures, see APY vs. APR.

Local contracts and consumer rights

The US and Canadian guidance cited above describes those jurisdictions. Requirements for add-ons, disclosure rules, cancellation rights, and tax treatment differ elsewhere. Compare itemized prices and contracts, and check your local consumer regulator. No car-loan tax deduction is assumed in the calculations.

How to compare total cost

Consumer agencies, including the FTC, the CFPB, and the FCAC, point to a few checks that make two offers comparable:

1. Agree on the price first. The FTC suggests getting an “out-the-door” price in writing, including taxes and fees, before discussing financing.
2. Compare more than one financing offer. A pre-approval from a bank or credit union gives a reference rate to compare with dealer-arranged financing.
3. Calculate the total. Monthly payment × number of payments + down payment, then add insurance, fuel, and maintenance for the years the car will be kept.
4. Check the balance against the likely value partway through the loan, to see how long the loan could stay underwater.

If a car is already underwater, the usual paths are keeping it longer so the balance catches up with the value, or paying extra toward principal. Trading in does not erase the gap; it moves it into the next loan, with interest.

Some people use the 20/4/10 rule of thumb. As described by Chase, it means 20% down, a loan of at most four years, and monthly transportation costs no higher than 10% of gross monthly income (before tax). Chase notes it is “not a one-size-fits-all formula.” What it illustrates is a cap on time, not only on the payment.

The car total cost calculator lets you enter two cars and two loans with insurance and fuel to compare total cost side by side.

Frequently asked questions

Is a 72- or 84-month car loan bad?

Not automatically. A longer term lowers the payment, but at the same rate it increases total interest, and the FTC notes such loans may carry higher rates. Longer terms can also keep the balance above the car’s value for longer. Comparing the total paid and the balance over time shows the trade-off.

How do I calculate the total cost of a car loan?

Multiply the monthly payment by the number of payments and add the down payment. Total interest is the total of payments minus the amount financed. For cash paid, add down payment and running expenses to loan payments. For economic ownership cost over a holding period, use depreciation plus interest and running expenses. Do not add depreciation to a purchase price already counted through principal repayments.

Does tax treatment change the comparison?

Tax treatment depends on your jurisdiction, vehicle use, and eligibility. Any verified benefit belongs in a separate calculation; the examples here assume none. A possible deduction does not remove interest, depreciation, or running expenses.

What happens to negative equity when trading in a car?

If the unpaid gap is financed in a new loan, it increases the principal and may increase the payment and total interest. A trade-in does not by itself cancel the old debt. The rate and term of any new financing still matter.