Roger Williams thought things were going haywire four years ago when customers began asking for five-year car loans.

Now Williams says he is witnessing something even more stunning: a growing demand for seven-year car notes.

"We hate to see it. But car prices are getting so high that a seven-year contract is the only way some people can afford them," said Williams, finance and insurance manager at Euro Motorcars Inc. in Bethesda.

Williams' company sells expensive cars -- Saab, Mercedes-Benz, Rolls-Royce -- with prices ranging from the high teens to more than $100,000. Things are not much different at dealers who sell cheaper cars.

Rising prices are changing the way many Americans acquire new cars. The age of the 20-percent-down, 36-month, fixed-rate loan is over. Some 70 percent of new-car buyers today cannot afford that arrangement.

Now, the 48-month loan is the norm, and 60-month contracts are commonplace. With prices climbing higher and with foreign and domestic auto makers trying to expand the 12.1 percent of the U.S. market that buys luxury cars, 72-month and 84-month loans are cropping up, too.

And, as happened a few years ago in real estate when buyers couldn't manage a conventional loan, "creative financing" has emerged in the auto industry. Financial institutions, freed by banking deregulation to compete more aggressively for lucrative car-loan sales, aregiving car shoppers almost as many finance options as people looking for houses.

There are variable rates and balloon notes in the car-loan market, as well as 90-percent- and 100-percent-purchase financing; and there are myriad ways to shave fractions of points off interest rates. And, of course, there is leasing.

But varied as they are, the loans have a common goal: lower monthly car payments.

"The average consumer looks at the price of a car in terms of how it will fit into the monthly budget," said Robert F. Murphy, chairman of General Motors Acceptance Corp., the nation's biggest finance company handling new-car loans.

"Ten years ago, we would not have thought of 48-month financing," Murphy said. "But during the '80s recession, we had to do something. People thought that their budgets were too strained, and that the only way they would be able to buy a car would be to reduce the monthly payment."

But as economists are fond of saying, there's no such thing as a free lunch. Stretching out the term of a loan might cut the payment, but it increases the amount of interest paid, i.e., the cost of the loan. In addition, longer-term loans typically carry higher interest rates, and the very long loans have variable rates, so the buyer cannot be sure what payments will be down the road.

Nearly 75 percent of GMAC's car-loan business is in 48-month notes. The rest of the business is almost evenly divided between leasing and 60-month loans, Murphy said.

Figures compiled by the Federal Reserve Board and by various organizations within the domestic auto industry illustrate what has happened to the monthly car note in the past 15 years.

In January 1970, the average car loan carried an 11.5 percent interest rate, matured in 34.7 months and called for a monthly payment of $100.33.

In January 1985, the average car loan was affected by cut-rate-finance campaigns offered by various auto makers, primarily the domestic ones. Still, the average car loan then carried a 12.2 percent interest rate for a term of 51.5 months. The payment: $270.18.

The average price of a new car sold in this country rose from $3,543 in 1970 to $12,110 in the fourth quarter of 1985. But auto officials argue that the comparison of "average prices" is misleading because most of the newer cars have more features than their predecessors.

A more accurate measurement of the cost increases in new-car purchases would be the average loan amount financed, the officials say. But that standard also shows that new-car expenses have zoomed upward. The average new-car loan in 1972 was for $3,104 compared with $10,498 in the fourth quarter of 1985, according to the Motor Vehicle Manufacturers Association of the United States Inc., which is based in Detroit.

"The price of the car has risen so sharply that the amount of money one has to use as a down payment really amounts to a sizable piece of household income," said Kent Williams, vice president of Maryland National Bank.

MNB usually finances 80 percent of the price of a new car, standard for most banks. But MNB also has programs in place -- 60-month leasing and 84-month variable-rate loans among them -- designed to reduce the burden of a down payment and/or to lower the monthly note, the bank vice president said.

MNB is studying the possibility of offering a balloon-payment plan, an increasingly popular car-purchase option offered by banks nationwide. The finance companies of the nations's three largest auto makers are offering versions of the balloon-payment plan on a limited basis.

Leasing is often advertised as a way of getting an expensive car painlessly because there is no down payment and because the deals are typically structured so monthly payments are less than those of customers buying on credit.

But leasing has pitfalls.

Many experts in the field say that, unless the car is used in business -- so that the payments are tax-deductible, like interest on a car loan -- leasing doesn't pay.

The lessee has no car at the end of the agreement and must buy the car or lease or buy another one, thus entering a cycle of perpetual car payments. Leasing critics say car owners, by comparison, could expect two or three years of payment-free ownership after the conclusion of 48-month purchase agreements.

Terminating a lease before it expires can be costly, especially if the break-off occurs early in the term -- say, in the first or second year -- when new cars depreciate most. The penalty for early termination of a lease can be as much as, or more than, a 20 percent down payment in a purchase agreement.

Also, lessees who exceed their contracts' annual mileage restrictions -- typically 15,000 to 18,000 miles -- can wind up paying "excess use" penalties at the end of their agreements.

Balloon-payment loans resemble leases. Some balloons have no down payment. Others require as much as 20 percent. Under the terms of a typical balloon car loan, a buyer agrees to 47 months of scheduled payments, with the balance due in the 48th month.

The final payment usually is based on the average residual value of the car -- what it would be worth on a used car lot -- and runs about 40 percent of the car's purchase price.

But because the buyer effectively is amortizing 60 percent of the total amount due under the balloon plan, the monthly payments are less than with a conventional loan of comparable duration.

The remaining 40 percent, or so, which is due in the balloon note, can be satisfied by returning the car in good condition at the end of the contract, trading the car in to a dealer in a new-car purchase, selling the car to an independent third party and paying off the note, keeping the car and paying off the note through other means or refinancing the balance through a bank.

If the car is in poor condition, the buyer will have to give the lender cash as well as the car to satisfy the note. Trading the car for another also might require cash, and is another ticket to perpetual car payments.

"My belief is that the balloon-note payment will become the way most cars are financed in the future," said MNB's Williams. "Dealers are not motivated to put someone into an 84-month contract, because the dealer wants to turn that customer around and put him into another new car in three or four years."

But MNB, like other banks on the East and West coasts, has agreed to offer 72-month and 84-month contracts because of growing customer demand for those kinds of loans, MNB's Williams said. Nearly all of the 72-month and 84-month payment plans are for buyers spending $20,000 or more on a car. The deals are viable because luxury cars, particularly European makes, typically hold 50 percent or more of their value after seven years on the road, according to Christopher Cedergren, chief auto industry analyst for J. D. Power & Co., which is based in California.

Still, the willingness of banks to go along with extra-long financing raises the question of whether they are encouraging people to buy cars they really can't afford.

"No, no," said Rick Beebe, a spokesman for Bank of America in San Francisco, which offers 72-month, variable-rate financing for buyers of luxury cars. "We look very carefully at the level of payments that customers can carry. We closely examine their credit ratings. We're not putting people in over their heads."

In cases of default, lenders have the same recourse to recoup losses under long-term contracts as they do under the now-ordinary 48-month plans, Beebe said. "A 72-month loan is like any other loan. We wouldn't offer it if we didn't think we could do so profitably."

Beebe said Bank of America offers one variable rate car loan in which the interest rate is adjusted once a year and another in which the rate floats up or down every three months, depending on the rates paid on government notes.

Banks are under pressure to come up with innovative ways to help people buy cars "because banking deregulation has brought a lot more lenders into the market," said Beebe. The newcomers, mostly financial services institutions, have been eating away at the banks' share of that market, according to Beebe and other bankers.

Latest figures from the Federal Reserve Board seem to support that argument. As of January 1986, commercial banks held 47 percent of the $293 billion outstanding in auto loans, financial services companies held 36 percent and credit unions held 18 percent.

In 1977, a year before banking deregulation began, commercial banks held 59.8 percent of the $82.9 billion then outstanding in auto loans, financial services companies held 18.4 percent and credit unions held 21.8 percent, according to Federal Reserve figures.

"There's no doubt" that higher car prices and competition among lenders are contributing to the current trend of lengthening car-purchase agreements and an increase in leasing and leaselike plans, said J. Ferron, vice president of the National Automobile Dealers Association, which is based in McLean.

"But it's not written in stone that the contract periods or leasing have to continue to increase, even though current data suggests that those trends will continue in the near term," Ferron said.

"Most people still opt for ownership. And there are forces at work, such as falling interest rates and changing life styles, that suggest that many people may not be inclined in the future to strap themselves to a 60-month or 84-month car loan," Ferron said.

"The tree, in terms of the overall length of auto contracts, is not going to grow to the sky," he said. CAPTION: Charts 1 through 4, Financing $15,000 For A Car; New Car Financing Trends; Bought A Luxury Car In '79? Here's What It's Worth . . . ; For A Comparable Model Today, What Will I Pay? The Washington Post