4 Ways a Long Car Loan Can Wreck Your Retirement Finances (Even If the Payment Looks Fine)

According to Kelley Blue Book, the average new-vehicle manufacturer's suggested retail price (MSRP) for July was $49,855 -- the highest level of 2026. With prices still so high, it's no wonder that American drivers are resorting to longer financing terms.

Ideally, if you're able to pay cash for a vehicle, it means no interest payments, paying only what you can afford and owning the vehicle outright without debt. However, raising that much cash is difficult, and moving money out of your retirement accounts to buy a car up-front with cash is a risky move.

But so is committing to a long-term loan. According to Edmunds, 72-month loans have been the most common loan term over the past 10 years, and "84-month loans reached an all-time high in the second quarter (Q2) of 2025, accounting for 21.5% of new-car financing."

Here are four ways a long-term car loan can ruin your retirement savings.

Postponing Peak Savings Years

You should be catching up by maximizing your 401(k) contributions and Roth IRAs in your 50s and 60s, not taking on more debt. A seven-year loan taken out at age 55 means you'll still be paying for a depreciating asset at age 62, just as you're planning to cut back on work hours. Every month you send a contribution to a bank rather than your retirement account, you lose a month of compound growth that you will never recoup.

Between registration and fees, insurance, gas, maintenance, and depreciation, you could be looking at an additional $2,000 a month in ownership costs on top of your monthly payment. As Consumers Credit Union points out, even "If the average ride is $25, you could take 80 rides at the same cost as buying a car. If you take fewer than 80 trips per month, you'd save money."

Building Negative Equity

According to JD Power's March 2026 automotive forecast, an estimated "30.5% of trade-ins are expected to carry negative equity this month -- an increase of 4.2 percentage points from March 2025." With a long loan there's a better chance you'll be selling or replacing the vehicle early and trading it in owing more than the car is worth.

This is often referred to as being "upside down" or "under water" on your loan. If you keep your car for a long period of time, it could work out, but taking on a new loan while paying off an old one is a vicious cycle and a hard one to break.

Paying More Overall

Let's face it, many car owners are forced into long-term loans out of financial necessity. Despite the lower regular car payments, you'll be paying more than double the amount in interest on an 84-month loan compared to a 36-month financing term.

As Forbes remarked, "That's not great for anyone of any age, but it's especially unwise for people in retirement; it's best to keep your debt load minimal as a retiree without a full-time paycheck to cover payments."

Creating a False Sense of Affordability

These days, people are more willing to acquire "more car" than they can afford because the monthly payments on long-term auto loans are lower. What buyers don't consider is that owning "more car" usually means higher overall costs, which can exceed your monthly loan payment and can eat away at your savings over time.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.