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Cars sit on the lot of a Chevrolet dealership on June 20, 2024 in Chicago, Illinois. A cyberattack on CDK Global, a software provider that helps dealerships manage sales and service, has crippled the workflow of approximately 15,000 dealerships in the United States and Canada.
Scott Olson | Getty Images News | Getty Images
DETROIT — A growing number of Americans with auto loans owe more than their vehicle is worth, according to a report released Tuesday by Edmunds.com.
The automotive data and consumer research company reports the average The amount owed on so-called reverse loans reached an all-time high of $6,458 during the third quarter. This compares to $6,255 in the previous quarter and $5,808 a year earlier.
Upside-down auto loans aren’t necessarily disastrous in and of themselves, but the growing number of consumers finding themselves underwater is another indication of the strain being put on American consumers.
A sign of this tension emerged last month, when the Federal Reserve Reported delinquency rates on auto loans rose significantly above pre-coronavirus pandemic levels through the end of 2023. They had fallen to historic lows during the global health crisis.
“Consumers owing a thousand dollars or two more than their car is worth is not the end of the world, but seeing such a large share of individuals hit at the $10,000 or even $15,000 level is everything simply alarming,” Edmunds’ Jessica Caldwell. responsible for analysis, said in a statement.
Edmunds reports that more than one in five consumers with negative equity owe more than $10,000 on their auto loans. This includes 22% of vehicle owners with negative equity who owed $10,000 or more, while 7.5% have negative equity of more than $15,000.
Consumers can counter reverse auto loans by holding on to vehicles for longer periods of time. They can also ensure that regular maintenance is performed to avoid further drops in value and costs, according to Edmunds.
“With prices and interest rates this high, it’s critical that consumers think beyond the monthly payment and be honest with themselves about their homeownership habits,” said Ivan Drury, director of research at Edmunds. “A seven-year car loan is a one-way ticket to negative equity if you know you’re not the type of person to hold on to a vehicle that long.”
The current upside down loan situation is largely due to consumers purchasing new vehicles in 2021 and 2022 amid a lack of inventory due to the coronavirus pandemic and parts shortages. Many then paid full price or more, with their vehicles depreciating faster than expected as the auto industry and inventories normalized.