Is It OK To Finance A New Car Now That You Can Deduct Interest?

As you may or may not know, the One Big Beautiful Bill Act (OBBBA) that was signed into law in the summer of 2025 includes a provision that allows you to deduct the interest on your car loan. Here’s what I said about it in a post we published a few days after OBBBA passed:

Auto loan interest deduction means that up to $10,000 of auto loan interest on newly purchased vehicles can be deducted until 2028. For a limited time only, and limited to vehicles “whose last assembly was in the USA.” This makes buying brand new cars on credit a no-brainer.

Today, let’s talk more about this new offer.

Laws

Here are a few rules about this that you should remember.

1. You can only deduct $10,000 of interest. Note that this is not the interest on the $10,000 loan. It’s $10,000 interest. If you bought a $100,000 car with a 10% loan, all interest is deductible. If you bought more than one car and the total interest is less than $10,000, it’s all still deductible.
2. The vehicle(s) must be brand new. Even if you buy it with 5,000 miles on it, it doesn’t count. New cars only.
3. The vehicle(s) must be for personal use. No business vehicles.
4. The loan must be secured by a lien on the vehicle. It should be a car loan, not a car put on your credit card.
5. It must be a normal car. Technically, that’s a car, minivan, van, SUV, truck, or motorcycle, with a gross vehicle weight of less than 14,000 pounds. No big semis or RVs. For reference, my truck weighs 8,000 pounds.
6. You don’t have to do things to get a deduction. It is very interesting to see so many deductions from Schedule A.
7. The itemized deduction is based on MAGI of $100,000 for single, $200,000 for married, and is not indexed for inflation. That will rule out MANY WCIs, especially those who can’t afford a car that will run on $10,000 in interest.
8. The deduction is temporary (expires after 2028).
9. The vehicle must have “last assembly in the United States.” Auto-compilation is a bad business these days, but here’s a comprehensive list. There are 117 cars in it, including cars from the following brands, many of which you wouldn’t think of as American. Note that not all cars from these brands get their final assembly in the US, so check your inventory before you buy—at least if you’re buying a car with credit. like an idiot.

• Acura
• BMW
• Buick
• The Cadillac
• Chevrolet
• Dodge
• Ford
• Genesis
• GMC
• Honda
• Hyundai
• Infiniti
• The Jeep
• Kia
• The Lexus
• Lincoln
• Lucid
• Mazda
• Mercedes-Benz
• Nissan
• Polestar
• A ram
• Rivian
• Subaru
• Tesla
• Toyota
• Vinfast
• Volkswagen
• Volvo

See what I mean? Almost every brand makes something in the US, but there may be as few as one model.

More info here:

Stop Buying Cars With Credit – 15 Reasons To Pay Off

Don’t Be Car Poor

What I Think About Cars

Admittedly, I’m not a car guy. As an insider, I’ve driven everything from a $1,850 beater (sold four years later for $1,500) to a $94,000 truck (and the occasional rental car). The only loan I ever had was for a $3,000 Geo Prizm that my parents sold me as a college senior for a 0% interest loan that I don’t have to pay off until after medical school. I firmly believe that reliable, reasonably safe transportation can be had for $5,000-$10,000 (and a few years ago, I would have dropped that price as low as $2,000). So, it seems silly to me that anyone would ever have a five-figure car loan.

I firmly believe that the reason most Americans are not millionaires is sitting in their own way. If you buy something that costs an extra $5,000 a year to operate (depreciation, maintenance, insurance, interest, etc.), that adds up (at 8%) to $1.3 million over 40 years.

=FV(8%,40,-5000) = $1,295,282

All that said, I am fully aware that $5,000 a year in spending should not make the difference between an attending physician earning $375,000 (median income) retiring early as a financially independent multi-millionaire and not having the ability to do so. If taking out a car loan on a $60,000 car you drive for ten years is the only thing you’re “whacking,” you’ll probably be fine.

Is Now Right To Buy A Car With Credit?

Not really. I mean, do whatever you want. Your money and your life. Personal finance is not religious, and you don’t need permission from your pastor to borrow a car. But this law only makes car loans slower than before.

First, it only enters 2028. In fact, you can deduct car loan interest for only 36 months if you buy a car in January 2026.

Second, most WCIs, at least going forward, cannot take ANY car loan interest deduction. Starting at $100,000 ($200,000 MFJ). If your income is that low, buying expensive cars on credit is a very bad idea for you.

Third, if you take my advice and buy a car that costs less than $10,000, you probably won’t save much on your taxes if you have to buy it with a loan. Let’s say it’s a $6,000 loan at 5%. The interest on that is $300 a year. If you make less than $100,000, you’re probably in the 12% bracket. (Maybe you’re a resident, too.) That means 12% * $300 = $36. Wow big. Oh wait. You don’t even get that much catch. Remember, this must be for a NEW vehicle. Buying a new car if you make less than $100,000 is something stupid less than good.

Fourth, if you’re buying a new luxury car with a cheap loan, this deduction makes it somewhat unwise. Also, let’s assume that somehow you can get 5% interest on that new $35,000 Toyota Camry. That’s $35,000 * 5% * 12% = $210 per year. During that time, he made monthly payments on a five-year loan of $674. It’s hard to get ahead when most of your spending income goes to paying for things you’ve already bought.

More info here:

My 27 Year Old Car Will Make Me Millions

The Cheapest Way to Own a Car

The Bottom Line

No, the advice hasn’t changed. It’s still stupid to buy cars on credit like it used to be.

WHAT DO YOU THINK? Am I completely wrong? Will you or someone you know take advantage of this new OBBBA opportunity?