The Rolls-Royce Specter All Electric Luxury Coupe is on display at the Rolls-Royce Motor Cars dealer showroom in London.
John Keeble | Getty Images News | Getty Images
Republicans are trying to make a promise from President Donald Trump’s campaign to give Americans a tax deduction on car loan interest. But as structured, most households will not get great economic benefits, the economist said.
House and Senate Republicans have proposed giving drivers a tax deduction of up to $10,000 on annual interest on new car loans in the so-called “one big beautiful bill law.” The tax credit is temporary and will end after 2028.
However, few drivers pay annual interest, according to Jonathan Smoke, chief economist at automotive market research firm Cox Automotive.
It’s “quite rare,” he said.
Auto loans don’t have over $10,000 in annual interest on any car loan other than large loans on “exotic” vehicles, Smoke said.
“Exotic Named Laundry List”
How big does the loan have to be?
Smoke said that to completely exhaust the $10,000 deduction in the first year of ownership of the car, a loan of about $112,000 is required.
According to Cox Automotive Data, this is only about 1% of new car loans that are as big as this.
Cars that are most likely to see loans of that size include “exotic name laundry lists” such as the Rolls-Royce, Ferrari, Bentley, Aston Martin, Lamborghini, McLaren, Porsche, Land Rover, Cadillac, Maserati, Lotus, and Mercedes-Benz.
Smoke’s analysis assumes that drivers use the most popular loan lengths. The current average of new loans is around 9.5% for 72 months. It includes a 10% down payment and various fees such as taxes and registration.
This example means that the vehicle’s purchase price is around $130,000, he said.
Vehicles with average purchase prices near this level include the Porsche Panamera or Cadillac Escalade, he said. Smoke said monthly car payments under these loan terms are likely to be over $2,000.
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House Republicans included a tax credit on car loan interest on a massive domestic policy bill, the “one big beautiful bill law” that lawmakers passed the party line slightly in May. The Senate can vote for similar measures as it did this week.
In fact, it is rare if all households are likely to claim full benefits due to income restrictions, experts said.
Both versions of the law reduce the value of the interest tax credit on car loans when an individual’s annual income exceeds $100,000, and reduce $200,000 for married couples filing joint tax returns. Households below these thresholds may qualify for full tax benefits, but are unlikely to buy a car that is expensive enough to do so, the economist said.
Drivers who may be eligible for six-figure car loans are also unlikely to maximize tax cuts. Taxpayers will not get financial benefits if their income exceeds $150,000 (or $250,000 for married couples), according to the Institute of Taxation and Economic Policy, a left-leaning think tank.
Qualified vehicles will also have to receive final meetings in the US, according to current legislative texts, which could further limit the potential roster of the vehicle.
Average car loans and interest rates
People walk by the Ferrari dealers in New York City.
Spencer Platt | Getty Images News | Getty Images
According to data from Cox Automotive, the average car loan so far for 2025 is around $43,000.
Under the Republican tax system, the average buyer receives a tax deduction of about $3,000 in the first year of a six-year loan (and an average annual deduction of about $2,000 more than the lifespan of the loan).
However, based on the tax credit mechanism, this does not mean that car buyers will win $3,000 in their pocket in their first year.
That $3,000 is deducted from the buyer’s taxable income.
“Mathematics basically says you’re talking [financial] Smoke said there was a profit of less than $500 in the following years, and its value fell in the following years. This is less than the average monthly payment for a new loan, he said.
