A ton of people are now underwater on their car loans | Quartz
Americans are facing a big problem regarding car debt, and the numbers are pretty eye-popping. A new survey found that 31% of U.S. drivers who financed their cars owe more than their car is worth—meaning they’re “underwater” on their loans. And it’s even worse for electric vehicle (EV) owners: nearly half (46%) deal with negative equity. Ouch. Part of the issue is that more than half of drivers overestimate their vehicle’s value, making the financial hit even harder when reality sets in.
This survey, conducted by CarEdge and Black Book, reveals how deep the problem runs. Of the 1,000 drivers surveyed, those who bought cars since 2022 are in the worst spot, with nearly 40% facing negative equity. As car prices rise and longer loan terms become more common, it’s getting easier for people to end up underwater. In fact, for EV owners, the situation is even bleaker. With luxury brands like Tesla and BMW leading the pack, EV buyers are significantly more likely to be in the red than those driving budget-friendly brands like Toyota and Honda.
The length of your car loan plays a huge role in whether you’re headed toward financial trouble. If you’re one of those drivers with a long 84-month loan, you’re probably about $5,000 underwater. Compare that to those who take out a 36-month loan, who typically have around $12,340 in equity. So, while longer loans might mean lower monthly payments, they also dramatically increase your chances of getting stuck in negative equity. It’s a situation no one wants, especially regarding such a pricey purchase.
To make things even more challenging, most drivers are seriously misjudging their car’s worth. The survey found that 61% of people believe their car is worth more than it is, and 17% think it’s worth at least $5,000 more than the actual trade-in value. When you’re ready to sell or trade, this can lead to a harsh reality check. Even worse, it could push buyers to roll their negative equity into their next loan, trapping themselves in an endless cycle of debt……
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Rising Dough
How does the overestimation of car values by consumers influence the financial strategies of car dealerships, and what ripple effects might this create for the broader economy and future car buyers?
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