Why more Americans are stuck in car loans

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1

Think about these questions before watching.

  1. When considering a significant purchase like a car, a home, or even higher education, what are the most important financial factors you would take into account? How do you typically weigh the immediate benefits against the long-term financial commitment?
  2. The video discusses how people can get 'stuck in debt.' What does this phrase mean to you, and what are some common situations or reasons why individuals might find themselves in a cycle of long-term debt, especially for consumer goods?
  3. In your opinion, how have the cost of living and consumer expectations changed over the past decade? Do you think it's becoming more challenging for people to afford major assets like cars without taking on longer and larger loans? Why or why not?
2

Watch the video carefully. Pay attention to the main ideas and key details.

Video script110 segments · click a timestamp to jump

The way Americans finance cars has changed dramatically.

Car loans are getting longer and buyers are staying in debt longer.

That can create a problem when it's time to buy the next car,

especially if they decide to roll the remaining debt into their

next car loan.

The problem we have is when we are trading in cars after three years

and we're underwater with the car that we're trading in now,

we're in this element of permanent car debt,

right? And that's a really concerning pattern because now

that long loan is combined with these trade ins and now it just

snowballs. And now individuals are constantly,

constantly financing a car.

Today, the average loan term for a new car lasts just over 70 months

or almost six years.

A loan that long would have been rare for most car buyers a few

decades ago. In 1986, the average new car loan lasted

only about four years.

Initially, someone would say you shouldn't get a 72 month loan.

Even 60 month loans have been deemed kind of like,

oh, if you can't afford a car over a 3 or 4 years,

don't buy one at all.

Right? So like some of these older ideas that people have about how

you should buy a car, how long you finance it,

they do not exist today.

Part of that is because cars have gotten much more expensive than

they once were. The average price of a new vehicle reached over

$48,000 in 2025, up from around $37,000 in 2019.

But another reason is that buyers who still owe money on their old

car are extending their next loan even longer.

When people are upside down on their existing loan and they need

to roll over, say, $5,000, $10,000 because they're

kind of behind on payments, the easiest way to make that next

car affordable is to tack on a year,

tack on two years to whatever loan you're looking at.

And this is how we end up with 84 month loans.

If you owe more on your auto loan than the vehicle is worth when you

trade it in, that gap is known as negative equity,

also referred to as a payment being underwater or upside down.

And while the concept isn't anything new,

the amount of negative equity that people are carrying has been

rising. In the second quarter of 2015 buyers with negative equity

were underwater by about $4,600 on average.

By the second quarter of 2026, that had climbed to nearly $6,900.

And for a significant share of buyers,

the hole is much deeper.

Today 24% of buyers trading in a car that's underwater owe at least

$10,000 more than it's worth.

This is something in which you do this once it happens,

it's okay, you know a lot of people $1,000,

$2,000, no big deal.

Whatever. Just pay off your loan.

It's fine. But once you start dipping into that seven,

eight, nine, $10,000, you know, upside downness of your

current vehicle being rolled into your next one,

you might never own the car, ever.

More than 40% of buyers rolling negative equity into another

vehicle take out an 84 month loan.

Their average monthly payment is about $944,

and estimates suggest that they could pay more than $16,000 in

interest for the duration of the loan.

So why do buyers keep taking on these loans?

Experts say part of the answer is how we've gotten used to thinking

about major purchases as monthly payments.

So we're constantly having this this bombardment for a new

subscription, a new monthly payment or whatnot.

We really aren't rational creatures as human beings,

but we're really good at rationalizing.

The issue really, is that people separate out the

payment more than they do thinking about the larger purchase.

So they start to think, well, you know what? I can handle

this monthly payment, but you're not really buying a

monthly payment. You're buying a larger 50 or 60 or 70 or whatever

it is, thousand dollar automobile.

So we separate that out and we say,

I can make this payment right now,

and it'll be in my driveway within two hours and I'm all set,

and we'll worry about the other stuff later.

Experts say buyers should look beyond the monthly payment and

consider what the car will actually cost them.

It isn't about whether you can afford the payment,

it's really about whether you can afford the purchase and sitting

down and seeing a $50,000 automobile that has 4% or 5%

interest rate on it, what is the total amount of that

purchase going to be? Because you're going to pay it over the

course of that time, and what is it going to come at

the expense of? Maybe it's home ownership,

maybe it's a master's degree, paying off student loan debt,

your kids education, whatever it might be.

It's going to come at the cost of something.

So I think it's important for individuals to really take a step

back when they're looking at any major purchase like this.

Again, not thinking about the monthly payment, but a purchase

like this and thinking, where else could this money go?

Do I really, really need this?

And is this an element of novelty that's going to wear off long

before I'm still making those payments?

For people like that that are kind of in that cycle,

this is where I recommend leasing.

A lot of people have like negative connotations or thoughts about

leasing. They say, oh, I'll never own the car. Well

guess what? You turn in a car after 3 or 4 years and you're

upside down on it. You never own that either,

but at least with a lease, you turn it in after you've made

those payments. You get something new.

You start afresh every single time.

Longer loans can make an expensive car easier to afford today,

but in fact, they're stretching the cost further into the future

while adding more interest along the way.

And eventually kicking that cost down the road can leave buyers

with less room to maneuver.

3

Answer these questions in your own words. Support your answers with evidence from the video.

01What is the primary issue described in the video regarding how Americans are currently financing cars?
Sample answerThe video explains that car loans are getting much longer, which means people are staying in debt for a longer time. This often leads to a problem called 'permanent car debt' because they roll over the remaining debt from their old car into a new loan, making the debt snowball.
02How have average car loan terms changed from 1986 to today, and what does this indicate about older ideas on car financing?
Sample answerIn 1986, the average new car loan was about four years. Today, it's over 70 months, which is almost six years. This indicates that older ideas, like only financing a car for three or four years because you shouldn't buy one if you can't afford it, are no longer common or practical for many buyers.
03Explain the concept of 'negative equity' in car financing and describe the potential long-term consequence for buyers who repeatedly roll this debt into new loans.
Sample answerNegative equity means you owe more on your auto loan than the vehicle is worth when you trade it in, also referred to as being 'underwater' or 'upside down.' If buyers keep rolling significant amounts of this debt, for example, $7,000 or $10,000, into their next car loan, the video suggests they might 'never own the car, ever,' because they're constantly paying off old debt on new vehicles.
04According to the experts in the video, what is the main psychological trap that leads people to take on these long, expensive car loans, and what alternative perspective should buyers adopt?
Sample answerThe experts say people often focus too much on the monthly payment instead of the total cost of the car. They rationalize that they can handle the small monthly amount, separating it from the larger purchase. Buyers should instead consider the full price of the car, including interest, and think about what other important things (like home ownership, a master's degree, or kids' education) that money could be used for, rather than just the immediate payment.
4

Vocabulary

Vocabulary
These expressions will help you communicate more naturally about this topic.
Examples
Get stuck in a cycle of debt — to be repeatedly in debt, often borrowing new money to pay off old debts, making it hard to escape.
This phrase describes a difficult financial situation where one debt leads to another, making it challenging to achieve financial freedom.
Be upside down on a loan / have negative equity — to owe more money on an asset (like a car) than its current market value.
These are common financial terms. 'Upside down' is more informal, while 'negative equity' is the formal term, often used for car or house loans.
Roll over debt — to transfer an existing debt, such as the remaining balance of an old loan, into a new loan.
This action typically increases the total amount owed and extends the repayment period, often making the debt more expensive in the long run.
A financial burden — a heavy financial responsibility or difficulty that causes stress or hardship.
This phrase is commonly used to describe the negative impact of large debts, ongoing expenses, or unexpected costs on an individual or household.
The snowball effect — a situation where something small grows in significance or size over time, often at an accelerating rate.
In finance, this idiom describes how small debts or financial problems can accumulate and become much larger if not managed early, implying a worsening situation.
5

Understanding car financing terms

The video discusses common challenges in car financing. Match the beginning of each sentence with its correct ending to complete the ideas.

Match each item on the left with the correct item on the right.

A
B
6

Match each word on the left with its natural partner on the right.

A
B
7

Grammar: Modal perfects (should have done, could have done, must have done)

Grammar
Modal perfects allow us to discuss past events with different shades of meaning, such as regret, missed opportunities, or deductions about what probably happened. By combining a modal verb (should, could, must) with 'have' and the past participle, we can analyze past financial choices and their outcomes, like those related to car loans.
Examples
Many car buyers should have researched their options more thoroughly before committing to a long loan.
"Should have done" expresses regret or indicates that a different, better action was advisable in the past.
If they had made a larger down payment, they could have avoided being 'underwater' on their car loan.
"Could have done" suggests a past possibility that didn't happen, or an alternative action that was available.
The salesperson must have presented the long loan terms very attractively for so many people to accept them.
"Must have done" is used to make a strong logical deduction about something that probably happened in the past.
Some people would have paid off their previous car if they hadn't rolled the debt into a new loan.
"Would have done" often appears in third conditional sentences to describe an unreal past consequence.
Key points
  • "Should have done" expresses regret or suggests a better past action.
  • "Could have done" indicates a past possibility that was not realized.
  • "Must have done" is used for strong logical deductions about past events.
  • Remember to always use 'have' (not 'of') after the modal verb: should have, could have, must have.
8

Correcting errors in car loan discussions

Read each sentence carefully. Each one contains a single error related to grammar, vocabulary, or usage. Identify the error and provide the correct sentence.

Each sentence contains one error. Find and correct it.

01Many people find themselves getting stuck in a cycle of debts due to unexpected expenses.
Corrected version
Many people find themselves getting stuck in a cycle of debts debt due to unexpected expenses.
02If you owe more than your car is worth, you are upside down in your loan.
Corrected version
If you owe more than your car is worth, you are upside down in on your loan.
03If they had thought more carefully, they should have avoided rolling over the debt.
Corrected version
If they had thought more carefully, they should could have avoided rolling over the debt.
04The long loan terms and high interest rates can create a significant financial burdens for families.
Corrected version
The long loan terms and high interest rates can create a significant financial burdens burden for families.
05The small initial debt quickly grew into a major problem, demonstrating the snowballing effect.
Corrected version
The small initial debt quickly grew into a major problem, demonstrating the snowballing snowball effect.
06He must have considered the depreciation of the car before taking out such a long loan.
Corrected version
He must should have considered the depreciation of the car before taking out such a long loan.
07The video explains how longer loan terms can lead to a permanent car debt.
Corrected version
The video explains how longer loan terms can lead to a permanent car debt.
9

Rewrite each sentence using the structure indicated.

01He didn't save enough money for a down payment, which led to a longer loan term.
Rewrite using 'should have' to express regret or advice about the past.
Hint: Think about what would have been a better financial action.
02They bought a very expensive car, and now they owe more on it than its current market value.
Rewrite using 'could have' to suggest an alternative, less problematic action in the past, and include 'upside down on a loan'.
Hint: Consider a different choice they had to prevent their current situation.
03The car dealership offered to add his old loan balance to the new one, and he accepted their offer.
Rewrite using 'shouldn't have' to express disapproval of a past action, and include 'roll over debt'.
Hint: What was a poor decision he made regarding his existing debt?
04The rising interest rates made their car payments extremely difficult to manage each month.
Rewrite using 'must have' to express a strong deduction about the past, and include 'a financial burden'.
Hint: What is a logical conclusion about the difficulty of the payments given the rising rates?
05If they had paid off their previous car loan completely, they wouldn't be in this continuous cycle of borrowing.
Rewrite using 'could have' to express a missed opportunity in the past, and include 'get stuck in a cycle of debt'.
Hint: What positive outcome was possible if they had acted differently in the past?
06Small financial mistakes accumulated over time, leading to a much larger problem with their car financing.
Rewrite using 'must have' to express a strong deduction about the past, and include 'the snowball effect'.
Hint: What is the inevitable conclusion about how the small mistakes grew into a bigger issue?
10

Useful phrases: Discussing personal finance and debt

Vocabulary
When discussing personal finances, especially big purchases like cars, it's helpful to have phrases ready to express concerns, ask for advice, or explain potential risks. These phrases will help you talk about debt, loans, and financial planning naturally with friends or family.
Examples
''I'm a bit worried about getting stuck in a cycle of debt with this car purchase.'' — Expressing personal concern and opening a discussion.
Register: Neutral to informal. Use when sharing your own financial anxieties or hesitations with someone you trust.
''It's easy to end up upside down on a loan if the car depreciates quickly.'' — Explaining a common financial risk.
Register: Neutral. Use when discussing the potential pitfalls of car financing or asset depreciation with others.
''I'm trying to avoid rolling over debt from my old car into a new one.'' — Stating a personal financial goal or caution.
Register: Neutral to informal. Use when explaining your strategy or concerns about a specific financial action you're considering.
''A long loan term can quickly become a real financial burden.'' — Emphasizing the potential negative impact of a financial decision.
Register: Neutral. Use when highlighting the severity or long-term difficulty that a financial commitment might bring.
''If you keep rolling over debt, you could face a serious snowball effect.'' — Warning about a cumulative negative outcome.
Register: Neutral. Use when explaining how small financial issues or decisions can grow into much larger, more problematic ones over time.
''What are your thoughts on managing car payments and avoiding long-term debt?'' — Inviting opinion or advice, broadening the discussion.
Register: Neutral. Use when you want to hear others' perspectives, experiences, or advice on general financial management or specific situations.
11

Complete the sentences with words from the box. One word is extra.

Word bank
01Many consumers find it hard to escape when they due to unexpected expenses.
02If the value of your car depreciates quickly, you might find yourself soon after buying it.
03To afford a new vehicle, some buyers choose to from their old car into the new financing agreement.
04For many families, an expensive car payment can become a that impacts their monthly budget significantly.
05Missing a few payments can lead to late fees and higher interest, creating the that makes it harder to catch up.
12

Understanding car loan challenges

The video discusses how car financing has evolved, leading many consumers into complex financial situations. This exercise explores common terms and scenarios related to car debt.

Fill in each blank with the correct word from the word bank.

Word bank
Many car buyers today are finding themselves in a challenging financial situation. A common problem arises when individuals are on their current car loan, meaning the vehicle's market value is less than what they still owe. This makes it difficult to sell or trade in the car without incurring further losses. To manage this, some might choose to their remaining debt into a new car loan. While offering immediate relief, this often results in a larger overall . This approach can easily lead to buyers getting in a cycle of debt where they are constantly financing new vehicles. Over time, this can become a significant , with the initial obligation growing rapidly due to the .
13

Words to take with you

Vocabulary
These expressions are not in the video but will help you discuss this topic more fluently.
Examples
A depreciating asset — an item that loses value over time, rather than increasing it.
This term is often used when discussing the financial wisdom of buying certain items, like cars. Example: "Unlike a house, a car is generally a depreciating asset, losing value from the moment you drive it off the lot."
To stretch out payments — to extend the period over which you pay back a loan, usually to make individual payments smaller.
This phrase describes a common strategy to make expensive purchases seem more affordable monthly. Example: "Many car buyers choose to stretch out payments over six or seven years to lower their monthly bill, even if it means paying more interest overall."
To be financially strapped — to have very little money; to be in a difficult financial situation.
This is a common idiom used to describe someone struggling with expenses or a lack of funds. Example: "After unexpected medical bills, they found themselves financially strapped and worried about making their car payments."
A significant investment — a large amount of money, time, or effort put into something with the expectation of a future benefit or return.
This phrase emphasizes the importance or high cost of a purchase, even if the item itself depreciates. Example: "Despite being a depreciating asset, buying a new car is still a significant investment for most households."
To fall behind on payments — to fail to make regular payments on a loan or bill by the due date.
This phrase describes a common problem that can lead to serious debt and credit issues. Example: "If you fall behind on payments for your car loan, you could risk damaging your credit score or even having the vehicle repossessed."
14

The growing challenge of car loans

Understanding the complexities of car financing is crucial for making informed decisions. This passage explores some common pitfalls.

Fill in each blank with the correct word from the word bank.

Word bank
Many consumers today find themselves in a challenging financial situation when purchasing vehicles. Longer loan terms and rapidly depreciating car values mean that it's common for people to be on their car loan, owing more than the car is worth. This creates a significant problem when they want to trade in their old vehicle, as they often have to any remaining debt into a new loan. This practice can easily lead individuals to get of debt, constantly financing new cars while still paying for old ones. What begins as a relatively small financial commitment can quickly become a significant , often exacerbated by , making it incredibly difficult to escape.
15

Discuss these questions with a partner. Try to use vocabulary from the lesson.

  1. Are longer car loans always a financial burden, or sometimes necessary?
  2. How do car financing practices in your country compare to those in the video?
  3. Should people avoid buying a car if they risk negative equity?