Is It OK to Finance a New Car Now That You Can Deduct the Interest?

The One Big Beautiful Bill Act (OBBBA), enacted in the summer of 2025, includes a provision allowing taxpayers to deduct up to $10,000 in interest on auto loans for newly purchased cars through 2028. This measure applies specifically to vehicles whose final assembly occurs in the United States and is intended to provide some financial relief to consumers.

Key stipulations regarding the deduction include that it is applicable solely to brand new vehicles intended for personal use, and the loan must be secured by a lien on the car. Additionally, the deduction phases out for individuals with a modified adjusted gross income (MAGI) exceeding $100,000 and for couples exceeding $200,000, making it less beneficial for higher earners. Vehicles eligible for the deduction include cars, SUVs, and motorcycles, but not larger vehicles such as RVs or semi-trucks.

While this provision reduces the financial burden of purchasing a new car on credit, it does not eliminate the inherent drawbacks of taking on a car loan. Critics argue that the deductions may not significantly alter the financial landscape for many consumers, particularly those with lower incomes who may not be able to afford higher loan amounts. Furthermore, the temporary nature of the deduction and its restrictions may limit its effectiveness in encouraging smarter financial decisions.

Personal finance experts maintain that it is still generally advisable to avoid purchasing cars on credit, as the costs of loans can detract from long-term financial stability. The act’s provision does not change the fundamental advice against taking on expensive debt for vehicles.

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