A report from Edmunds.com shows that a growing number of Americans with auto loans owe more than their vehicles are worth, with the average amount owed on these upside-down loans reaching an all-time high of $6,458. While being upside-down on a car loan is not necessarily a major problem, the increasing number of consumers in this situation is a sign of financial strain. Consumers who owe more than $10,000 on their auto loans make up more than 1 in 5 car owners with negative equity, with 7.5% owing over $15,000.
To counter upside-down car loans, consumers are advised to hold onto their vehicles for longer periods and to ensure regular maintenance is done to prevent additional drops in value. Edmunds also recommends that consumers think beyond the monthly payment and be realistic about their ownership habits, as taking out a long-term auto loan can lead to negative equity if the vehicle is not kept for that duration.
The current increase in upside-down loans is largely attributed to consumers purchasing new vehicles in 2021 and 2022 during a period of low inventory and parts shortages caused by the Covid-19 pandemic. Many buyers paid full price or more for their cars, only to see their value depreciate faster than expected as the auto industry and inventories returned to normal.
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