SUMMARY: With new car prices continuing to climb, more drivers are holding onto their vehicles longer than ever. A personal finance expert breaks down what actually matters when deciding whether to keep your car or trade it in, from maintenance costs to new tax deductions on car loan interest.

Need a new car? You may have sticker shock when you get to the dealership. The July 2026 average transaction price (ATP) for a new vehicle according to Kelley Blue Book was $49,855. With prices continuing to climb, many drivers may find it makes more financial sense to keep the vehicle they already own. If you do the same, you’ll be part of a trend. One recent study by The Zebra says Americans are keeping their cars longer — about eight years on average.

Think beyond the monthly payment.

That doesn’t mean you’re stuck with a high payment, though. Larry Pon, a personal finance expert, CPA, and enrolled agent based in Redwood Shores, Calif., says it’s important to look at multiple criteria when deciding whether to stay in your current car or upgrade to a new one. Your first order of business: Think with your head rather than your heart. 

Pon says many people view a vehicle as an extension of their personality, but that mindset can lead to financial trouble, adding that “If you can't afford that car, then you shouldn’t buy it.”

But don’t focus solely on the sticker price. You should also consider:

• Average maintenance costs of the car 
• Gas mileage 
• Insurance fees
• Registration and ownership fees

Run the numbers before you buy.

Once you’ve run the numbers, it’s time to look at down payment options and interest rates. Car dealerships may offer low-interest rates, but those deals are usually few and far between and limited to people who have the highest credit scores or may apply to only certain dealer-selected vehicles out of their inventory.

There may also be fees that are not disclosed up front, says Pon. “You’ve got to read the fine print, because nothing’s free. So when they say, ‘Zero percent interest for five years,’ it may not be completely true,” he says. “My favorite sources for car loans are Credit Unions because they tend to have better rates as nonprofit organizations.”

For instance, American Airlines Federal Credit Union offers loans for new and used autos, and provides refinancing for existing car loans, too. As of August 2026, Annual Percentage Rates (APR) start as low as 3.34% APR for new cars and 3.84% APR for used cars.  

Don’t overlook tax benefits.

The good news is interest from personal car loans is now tax-deductible if you meet certain criteria. As of August 2026, the car you’re buying must be (or have been) purchased between 2025 and 2028, new and never used before, assembled in the U.S., and weigh less than 14,000 pounds. “It’s got to be a new car that’s driven for at least 50% personal use,” Pon adds. And don’t assume a foreign car won’t meet this criteria. Companies such as BMW, Toyota, Hyundai, and Subaru all build cars here in the United States, while some American cars are built in Canada or Mexico. 

The deduction, which caps out at $10,000 of interest, is available to everyone, including those who take a standard deduction. It phases out at higher income levels. Once you hit $100,000 as a single filer or $200,000 as joint filers, for example, you’ll see less of a deduction. It goes away completely once you earn $150,000 as a single filer or $250,000 filing a joint return.*

Understand when refinancing makes sense.

This deduction also makes it possible for you to hold on to a new car purchased in 2025 and refinance the loan, potentially bringing your payments down if interest rates have dropped, Pon says. However, don’t be fooled into taking a longer term just to lower your payments.

“You're going to pay a whole lot more interest if you switch from a three-year loan to a seven-year loan even if payments are lower. Some people get snookered into refinancing, because what they see is, ‘Oh, my payment is $200 less.’ But when you look at things clearly, you’re paying a few thousand more in interest over those extra four years. We always have to do the math, run the numbers, and see if it makes sense.”

And if the numbers do work and you can keep your loan term the same while paying a lower interest rate? It may make sense to stick with your current vehicle, he says. “Newer cars are holding up pretty well if you take care of them,” he adds.

Credit Unions can also provide valuable protection for your vehicle. Products such as credit life, credit disability, warranty and asset protection programs can protect your investment, often at a more reasonable cost to what dealerships typically offer for similar services.

*Consult your legal or tax counsel for advice and information concerning your particular circumstances. Neither American Airlines Federal Credit Union nor any of its representatives may give legal or tax advice.