How 96-Month Car Loans Affect Your Finances

The auto industry has seen a dramatic shift in recent years, with car prices soaring and buyers stretching their budgets thinner than ever. One of the most concerning trends? The rise of 96-month car loans—eight-year financing plans that promise lower monthly payments but come with hidden financial pitfalls. While these extended loans may seem like an easy way to afford a new vehicle, they can trap borrowers in cycles of debt, negative equity, and long-term financial strain.

The Appeal of Longer Loan Terms

Lower Monthly Payments

At first glance, a 96-month car loan looks attractive because it reduces monthly payments. For example, a $40,000 loan at 5% interest breaks down like this:

• 60-month loan: ~$755/month
• 72-month loan: ~$644/month
• 84-month loan: ~$566/month
• 96-month loan: ~$511/month

The difference between a 5-year and an 8-year loan is nearly $250 less per month, making expensive cars appear more affordable. But this short-term relief comes at a steep long-term cost.

Easier Approval for Buyers with Lower Credit

Lenders often approve longer loans for buyers with subprime credit scores because the extended term reduces default risk (for the lender). However, these borrowers usually face higher interest rates, further increasing the total cost of the vehicle.

The Hidden Dangers of 96-Month Loans

You’ll Pay Much More in Interest

The biggest downside? Interest piles up over time. Using the same $40,000 loan example:

• 60-month loan: Total interest = ~$5,300
• 96-month loan: Total interest = ~$9,100

That’s nearly $4,000 extra paid just for stretching the loan term.

Negative Equity: The Underwater Car Problem

Cars depreciate fast—typically 20% in the first year and 10% annually after that. With a 96-month loan, you’ll likely owe more than the car’s value for most of the loan term. This is called negative equity, and it creates major problems:

• Trade-in difficulties: If you want to sell or trade the car early, you’ll still owe money.
• Higher insurance costs: Lenders often require full coverage insurance, which is expensive.
• No financial flexibility: Being underwater limits your ability to refinance or upgrade.

Higher Risk of Being Stuck in a Bad Loan

Life changes—job loss, medical emergencies, or simply wanting a different car—can make an 8-year loan feel like a financial prison. Early termination often means:

• Hefty penalties
• Rolling negative equity into a new loan (digging a deeper debt hole)
• Damaged credit if you default

The Bigger Economic Picture

Rising Auto Debt in the U.S.

Americans owe $1.5 trillion in auto loans, with longer terms becoming the norm. In 2023, 34% of new car loans were 72+ months, and 5% were 85+ months. This trend reflects:

• Skyrocketing car prices (average new car: ~$48,000)
• Stagnant wage growth
• Lenders pushing risky loans to keep sales high

Inflation and Interest Rate Pressures

With the Federal Reserve raising interest rates to combat inflation, auto loan APRs have climbed. A 96-month loan at 7-10% APR (common for subprime borrowers) can turn a "budget-friendly" payment into a financial nightmare.

Smart Alternatives to 96-Month Loans

Buy a Cheaper Car

The simplest solution? Avoid overborrowing. Opt for a reliable used car or a more affordable new model. A $25,000 car with a 60-month loan is far safer than a $40,000 car with a 96-month loan.

Make a Larger Down Payment

Putting 20% or more down reduces loan amounts and minimizes negative equity risk.

Refinance When Possible

If you’re stuck in a long loan, refinancing to a shorter term (if financially feasible) can save thousands in interest.

Lease Instead (For Some Buyers)

Leasing can be a better option for those who prefer new cars every few years, as it avoids long-term debt traps.

Final Thoughts

While 96-month car loans offer temporary relief, they’re a dangerous financial gamble. Before signing, ask yourself:

• Will I still want this car in 8 years?
• Can I handle higher insurance and maintenance costs?
• What happens if my financial situation changes?

In an era of economic uncertainty, shortening your loan term—not extending it—is the smarter move.