Americans are facing a major issue when it comes to car loans. A recent survey conducted by CarEdge in partnership with Black Book revealed some shocking statistics about the state of automotive debt in the country. According to the survey, a staggering 31% of American drivers who have financed their cars currently owe more than the value of their vehicles. The situation is even more dire for electric vehicle (EV) owners, with 46% of them in negative equity.
The survey also highlighted the fact that over half of the surveyed drivers overestimated the value of their cars. This misconception can lead to even more financial trouble down the road, as it may result in buyers rolling over negative equity into their next car loan and perpetuating the cycle of debt.
One of the key factors contributing to negative equity in car loans is the length of the loan terms. Car owners with longer loan terms, such as 84-month loans, are more likely to be underwater on their loans. On the other hand, buyers with shorter loan terms, like 36-month loans, tend to have more equity in their vehicles. While longer loan terms may reduce monthly payments, they also increase the risk of negative equity in the long run.
Luxury car brands, particularly Tesla and BMW, were found to have higher rates of negative equity compared to budget brands like Toyota and Honda. This disparity suggests that the type of vehicle purchased can also impact the likelihood of being underwater on a car loan.
The average price of a new car in the market is over $48,000, making it challenging for many consumers to stay within their budget when purchasing a vehicle. While there are more affordable options available, such as buying used cars, the allure of new cars and the desire for the latest technology can push buyers to stretch their budgets beyond their means.
The survey results paint a concerning picture of the current state of automotive debt in the country. As more drivers find themselves in negative equity on their car loans, it raises questions about the sustainability of the market and the potential consequences of a bursting bubble. It’s essential for consumers to carefully consider their financial situation and the terms of their car loans to avoid falling into the trap of negative equity.
