Why Your Car Loan Is the Worst Debt You Have

Venny's got a take that's going to make people mad, so we'll get to it fast: the average American car loan is worse than credit card debt.

Before you close this tab — hear Venny out. The math is brutal.

The numbers as they actually are (2026)

Read that. One in three new-car buyers owes more on the loan than the car is worth after 12 months. Let that sit.

Why this is worse than credit card debt

Here's why a $35,000 car loan at 7% is arguably worse than a $35,000 credit card balance at 22%, even though the interest rate is lower:

1. The depreciation stacks on top of the interest

With a credit card, your debt is $35,000 and stays $35,000 until you pay it down. With a car loan, your debt is $35,000 but the collateral drops 20% in year one. After 12 months your car is worth $28,000 and you still owe $31,000. You're $3,000 underwater on top of the $2,500 in interest.

Effective cost in year one: ~16% of the price. Not 7%. The interest rate is only half the story.

2. The fixed payment locks you in

Credit card debt is bad but it's flexible. You can do a balance transfer, a debt consolidation, throw an extra $200 at it in a good month. A car loan is a fixed monthly bill for 5-7 years. Lose your job, get sick, have a kid — the $735/month doesn't move.

3. The car is essential, so you can't walk away

In America without functional transit, you need the car to keep working and earning. The loan has you in a corner.

Why 72-month loans are a trap

In 2010, the most common loan term was 48 months. Today it's 72. The industry pushed the term out because car prices went up faster than incomes, and the only way to keep the monthly payment palatable was to stretch the loan.

Consequences:

• You pay way more interest over the life of the loan (a $35K loan at 7% for 72 months costs $7,800 in interest vs $5,200 at 48 months).
• You're underwater for most of the loan's life — meaning if the car gets totaled or you need to sell, you owe money on a car you no longer have.
• You're likely to want a new car before you finish paying this one off, which often means rolling negative equity into the next loan ("$5,000 you owe on the old car added to the new loan"). That's how people end up with $60K loans on $40K cars.

The rule that fixes all of this

Venny's one-rule-to-rule-them-all on cars:

If you can't hit all three, you can't afford the car. Buy a cheaper one.

This is mean. It's also what keeps people from being $8,000 underwater at their peak earning years.

The used-car math

Depreciation is a gift to the buyer of a used car. The first owner eats the 20% hit in year one and another 15% in year two. You walk in at year 3 and buy a $47,000 car for $28,000. Same car. Same features. $19,000 less.

Certified pre-owned from a dealer: 3-5 year old car with warranty. The sweet spot for value.

Yes, used car prices in 2021-2023 went crazy. That era is largely over. Used car prices are normalizing. Shop it.

The refinance move (if you're already in a bad loan)

If you're reading this and you already have a 7-9% car loan, you may be able to refinance. Here's when it works:

• Your credit score went up since you got the loan (common after 12-18 months).
• Rates have dropped since you took the loan (check current market).
• You're not underwater on the loan (or only slightly).
• You have 2+ years left on the loan (so interest savings are meaningful).

A 2-point APR drop on a $25,000 loan with 48 months left saves $1,000+. Worth the 30 minutes to shop.

The leasing question

"Should I just lease?" comes up constantly.

Leasing is renting a car for 2-3 years. You pay for the depreciation that happens during your lease term, then you give the car back.

Leasing can make sense if:

• You run a business and write off the payments
• You specifically want a new car every 2-3 years (a preference, not a need)
• You drive under 12,000 miles per year (leases cap mileage)
• The lease terms are favorable (low money-factor, high residual)

Leasing is usually a trap if:

• You drive a lot (over-mileage fees crush you)
• You lease forever (you never own anything — pure expense for life)
• You add extras at signing (gap insurance, wheel protection, etc. are overpriced)

For most people, buying used, paying cash or with a 3-year loan, and keeping the car 8-10 years is the winning strategy. Unsexy. Correct.

The "but I need a nicer car for work" lie

Unless you're a realtor driving clients around all day, nobody is evaluating your career based on your car. This is a story we tell ourselves to justify a $700/month payment.

Meanwhile, the person driving a 7-year-old Toyota is putting that same $700/month into an index fund. In 20 years they have $360,000. You have a different depreciated car.

The Venny rule

Cars are transportation, not identity. Buy the cheapest reliable car that gets you to work. Drive it until it dies. Invest the difference. Do that for 30 years and you'll be the richest person at the stoplight, driving the crummiest car. That's the play.

— Venny