More Americans are saddled with auto loans and owe more money than ever before.
According to the car comparison site Edmunds, nearly a quarter of Americans, or 24.2 percent, are in debt on their auto loans, meaning they owe more than the car is worth.
To make matters worse, the average amount owed is the highest on record, with an average cost of $6,458.
“Vehicle prices have increased, so vehicles are just inherently more expensive,” said Jessica Caldwell, chief insight officer at Edmunds.
“What we saw just a few years ago was there was a shortage of inventory, so people were paying above MSRP. When you do that, you obviously owe a lot more money and you start to have a longer loan term. A few years later, you decide you don’t want the vehicle, and now you go to sell it, and because you paid too much, you bought high, you sell at a much lower price.
Caldwell said the average cost of a new car is about $47,000 – which has been the standard price for about three years – and $28,000 for a used car, which again reflects a average over three years.
These two figures represent relatively high watermarks for vehicle costs. Higher interest rates play a role in prices, with the average for a new vehicle being 7.1% and 11.2% for a used car.
“We’re seeing rate cuts from the Fed, but it won’t necessarily have a massive impact,” Caldwell said. “Continuing the Fed cuts, I think that’s definitely going to help, especially if you’re someone who’s getting a rate like 6% because a half point or a full point is going to make a big difference.”
More than one in five consumers with negative equity owe more than $10,000 on their auto loan.
“The number of people who are below par on their loans is probably going to continue to increase, just because it depends on how much prices go up,” she added.
To avoid this problem, experts suggest keeping a car for as long as possible, at least for the entire loan. They also recommend trying to get the shortest term available, no longer than six years.
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