Ph.D. engineer and MBA writing about wealth psychology, financial clarity, and why most money advice misses the point.
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From the time I got my first job until recently, a car payment was part of my monthly budget.
The first car I bought was a ten-year-old Mazda Millenia, back in my early 20s. I was excited to get my first car. Within a year, the engine died. I had to sell it to a junkyard while I still owed money on it. It took me another two years to pay off the loan.
As my paycheck grew, I financed better cars and kept upgrading. Having a car payment was normal. You always assumed there would be one. The only question was how much you could afford.
The car payment was a constant line item, like food, utilities, insurance, and taxes. You never questioned it.
In 1919, when General Motors opened its lending company, you could buy a GM car by putting down about a third of the car price and were expected to pay the rest within one year.
In the late 1940s, you had about eighteen months to pay off your car loan. After the war, the loan terms started to grow slowly, and by the 1970s, average new-car loan terms had doubled to around three years. If you talk to your parents, that is how long it took a lot of them to pay off their car. You bought the car, made the payments, and then stopped.
Having a paid-off car was common. You would drive the car for many years after you sent your last payment. Nobody treated having a paid-off car as a great financial achievement.
Some people took the idea to the extreme. Rachel Veitch, a retired nurse in Orlando, bought a new Mercury Comet in 1964 for $3,300 and drove it for the next 48 years. She kept a record of every part in the car that had lifetime guarantees, and managed to replace many of those parts for free for almost half a century. She would joke, "I'm the lifetime guarantee people's nightmare."
She drove the car for 567,000 miles by 2012. She had to give up driving at the age of 93 as her eyesight failed. The car was still running. What Veitch did was unusual. But paying off a car and driving it for years afterward was quite normal.
Starting in the 1970s, it all began to change. Finance companies started to offer longer-term loans to make buying a car more affordable. Car companies also loved the idea, since a longer-term loan meant they could sell more expensive cars that still fit in the same monthly budget.
Average loan terms kept climbing to 45 months by 1980, 55 by 1990, and 63 by 2010. Today, the average is a little over 70 months. Car prices have jumped about 26% since 2020, putting new cars further out of reach, and some dealerships have tried to reduce the monthly payment by extending the loan terms even more. About one in four new-car loans now runs 84 months or longer.
We stopped thinking of a car loan as a temporary expense. Many of us even went further and decided to buy a new car every few years before the loan on the old car was paid. On three in ten trade-ins, owners owe more on the car than the car is worth by an average of $6,900, and some choose to roll the debt from the old car into a new loan. They start driving a new car while still paying for the old car.
For many of us, the car payment has become a permanent line item in our budget.
Car loans can eat a big portion of a family budget. Average new-car loans now run over $44,000 and cost more than $750 a month. At 7% interest, about a third of your payment in the first year goes to interest. By the time you fully pay off the loan on that new car, you have spent about $10,000 on interest alone. Extending a five-year loan into seven can reduce your monthly payment by $200, and also cost you $3,500 more in interest.
The cheapest car I bought was the big old Mazda Millenia. I drove it for less than a year before it failed. It ended up being the most costly car I owned. Since I bought that car, and until recently, I always had a car loan payment. After I paid off my last car last year, I decided not to get a new car, and that meant we had more money to travel and enjoy life. Every loan you no longer need to pay gets you a step closer to financial freedom. And if you fancy a new car, you can save and budget, and pay for it when you can afford it. The car payment was supposed to end. When your car loan ends, do not start another.
Robert P. Shay, New-Automobile Finance Rates, 1924-62 (National Bureau of Economic Research, 1963). After federal credit controls lapsed in November 1947, "the typical maturity moved from 15 to 18 months." https://www.nber.org/system/files/chapters/c1884/c1884.pdf
Board of Governors of the Federal Reserve System, Weighted-Average Maturity of New Car Loans at Auto Finance Companies (discontinued), via FRED. 35.0 months in June 1971; annual averages of 44.7 months in 1980, 54.6 in 1990 and 63.0 in 2010. https://fred.stlouisfed.org/series/DTCTLVNMNM
Federal Reserve Board staff, supplement to the Greenbook for the FOMC meeting of 19 December 1972, Appendix A, "Maturities on New-Auto Loans." A move to 42 or 48 months "could reduce monthly payments on a given car by approximately 10 to 20 per cent, or increase by about 15 to 30 per cent the size of loan that could be supported with a given monthly payment." https://www.federalreserve.gov/monetarypolicy/files/FOMC19721219gbsup19721215.pdf
WUSF Public Media and NPR, "After 567,000 Miles And 48 Years, Florida Woman Parks Her 'Chariot'," 4 April 2012. Rachel Veitch of Orlando; her 1964 Mercury Comet Caliente, bought for just under $3,300; 567,000 miles; lifetime guarantees outlasted on three sets of shocks, eight mufflers and 18 batteries; "I'm the lifetime guarantee people's nightmare"; she stopped driving at 93 because of macular degeneration; the car still runs. https://www.wusf.org/2012-04-04/after-567-000-miles-and-48-years-florida-woman-parks-her-chariot
Arcanomy calculation, standard loan formula on Edmunds' Q2 2026 averages ($44,156 at 7.0%). About 31% of first-year payments go to interest. A seven-year loan instead of a five-year loan lowers the payment by about $208 a month and adds about $3,520 of interest.
