Don’t let a car be the reason you can’t retire. Four of the biggest auto-loan mistakes and how to avoid them.

Auto Loans
Co-Authored and Reviewed by Gagan Sandhu, MBA - The University of Chicago Booth School of Business, CEO of Xillion
Posted on . 4 min read

Did you know that Ford makes nearly as much profit from auto loans as it does from manufacturing cars? The auto loan industry in the U.S. generates around $161 billion annually, which makes it larger by revenue than U.S. industries including newspapers, day care, movies, and home-building, according to IBISWorld estimates. These statistics show just how big (many would say “out of control”) the American auto-loan industry has become.

It wasn’t always this way. In the 1950s, around a third of car buyers in the U.S. paid with cash. But as debt became cheaper and more widely available, automakers figured out they could generate a significant profit by financing car purchases.

In more recent years, Americans have started taking out longer and more expensive auto loans. Most auto loan terms tend to be between 24 and 60 months, but increasingly people are opting for 72-month and 84-month loans. Making matters worse, monthly payments are also getting more expensive. In 2019, only around 4% of auto loans had monthly payments over $1,000 per month. Now closer to 17% of auto loan payments are over that threshold.

Car Sales Payment Source

Millions of Americans are stressing out over their monthly auto loan payment. In some cases, this is entirely by choice — some people just want to drive the latest Ford F-150 or Tesla Model X, both of which can often cost over $100,000. New cars sold on average for $46,000 last year, which was well over half of the real median household income. Used cars used to be an attractive option for many people, but in recent years their average cost has also gone up too.

As it turns out, automotive loans are one of the biggest financial decisions that many of us make. If you make a bad decision, it can set back your path to financial freedom by years. Why? Because if you’re young, all the extra money spent on a car could be going into markets, generating wealth over time.

That’s why it’s so important to avoid easy mistakes. It’s also why Xillion created an auto loan calculator that lets you put in inputs such as loan payment, term, and interest — we’ll show you exactly how your decision will impact your path to financial freedom.

Auto Loan Calculator

If you’re in the market for a car, we recommend checking out the calculator (for free) at In the meantime, here are four of the biggest (and easiest to avoid) mistakes people make in purchasing a car and how to avoid them:

  • Brand matters, but not the way you think It’s a mistake to think the brand of your car doesn’t matter — but it’s not because you need a flashy car brand. Rather, buy from an automaker that’s known for its reliability, safety, and durability. For most people in the U.S., Toyota, Subaru, and Honda are great choices. Of course, it’s always worth investigating the particular model and manufacturer before making a decision. But if you think you need a fancy car to validate yourself, remember — if a Prius is good enough for Sergey Brin (and a Honda Accord for Jeff Bezos), then it’s probably good enough for you.

  • If you are financing, shop around for loan options Many buyers make the mistake of simply accepting the financing offered by the dealership without exploring other options. Take the time to explore other lending institutions, such as banks, credit unions, and online lenders. Dealerships can be pushy, but remember, you’re the one who has to live with the monthly payment. Even a seemingly small difference in interest rates can result in significant variations in your monthly payments and overall loan costs.

  • Term duration matters as much as monthly payment A lower monthly payment can be deceiving — and, unfortunately, auto-loan companies know that. Use the Xillion calculator to figure out which option is really best in the long-term. And if you find savings that way, use our portfolio optimizer to invest the difference in markets for a long-term gain.

  • Don’t forget to look for EV subsidies Federal and state governments offer subsidies designed to encourage drivers to purchase EVs instead of gas vehicles. In some cases, the subsidies can run close to $10,000. It’s a huge benefit for Americans, and if you live in an area with convenient access to charging stations (or if you can charge at home) then it’s 100% worth looking into.

Making a car-buying decision can be scary. And it’s certainly a decision that should not be taken lightly. Here at Xillion, we want to help you make sure you avoid the easy mistakes so that you can get to financial freedom faster. Before you make a decision, don’t forget to check out our auto-loan calculator!

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