There’s been a sharp increase in the number of longer-term auto loans purchased by drivers on U.S. roads, according to the Consumer Finance Protection Bureau.

The regulator says that 42 percent of auto loans made in the last year carried a payback term of six years or more, compared with just 26 percent in 2009.

“The move to longer-term auto loans is opening up more risk for consumers,” CFPB Director Richard Cordray said in a press release. “These loans are more expensive and can result in consumers continuing to owe even after they are no longer driving their car.”

Auto loans are the third largest category of household debt for American consumers behind mortgages and student loans. There are almost 100 million auto loans outstanding, totaling more than $1 trillion, according to the CFPB.

The CFPB calculates that a borrower who uses a five-year loan to finance $20,000 at a 5 percent interest rate will, after three years, have paid $2,190.27 in interest and have a remaining balance of $8,602.98.

If the same loan had been financed over six years at the same interest rate, the borrower would have paid about $152 more in interest over the same three-year period and have a remaining balance of $10,747—about $2,000 more than if he had taken out a five-year loan.

The CFPB also says that six-year auto loans are riskier because their lower monthly payments make them appealing to consumers who generally have lower credit scores and try to finance larger amounts.

Consumers also took out bigger loans as the terms became longer. A six-year loan averaged $25,300, compared with $20,100 for a five-year loan, the researchers found. And loans with terms of seven years or more were even bigger, averaging $32,200.

Perhaps not surprisingly, the regulator says the longer-term loans have higher rates of default, posing greater risks to both consumers and lenders. “Six-year loans are about twice as likely as five-year loans to result in a default,” it said.

A spokesperson for the American Bankers Association, an industry group, says that while the rate of delinquencies is creeping up, it remains below its 15-year high. 

“The thrill of a new car shouldn’t override the need for consumers to balance affordability and loan duration to ensure they’re not taking on too much for too long,” says James Chessen, ABA’s chief economist.

The ABA offers a “How Much Car Can I Afford” calculator to help consumers.

“If you are considering a new car loan beyond five years, it's a signal you are buying a car that is too expensive,” says Greg McBride, senior financial analyst at Bankrate. “People make the mistake of shopping based on what the monthly cost will be, rather than focusing on the total they will pay.”

The Case for Shorter-Term Loans

The next time you find yourself shopping for a car, focusing on these financing tips will help you to get the best car loan, and probably encourage you to avoid long-term car loans.

  • Appreciate depreciation. The typical new car loses about 20 percent of its value the moment you leave the dealer’s lot, and it’s all downhill from there, says Carroll Lachnit, consumer advice editor at The financial reality that you will never be able to sell your car for near what you paid should help motivate you to keep your total costs as low as possible, with a shorter-term loan being part of your strategy.
  • Avoid negative equity. While the size of your down payment impacts your equity, so too does the length of the loan: The longer your loan term, the longer it takes to build equity. Even if you don’t anticipate trading in the car within a few years, if your car is stolen or totaled in an accident, the insurance payout will be based on its depreciated market value. If you are still in the early stages of a long-term loan (with a low down payment) you could be painfully “upside down,” in car-loan lingo.
  • Focus on the bigger picture. Ignore shiny ads (and car salesmen) luring you with “affordable” monthly payments that invariably are based on long-term car loans. “Before you start shopping, give yourself a reality check by looking at the total all-in cost of your car based on different loan terms,” advises Lachnit. Noodling around with an online calculator will help you find your budget sweet spot. Then you can shop for the best deals at your price point.