Understanding the Growing Issue of Negative (Upside-Down) Equity in Auto Loans

Recent data from CarEdge and Black Book highlights a concerning trend in the automotive financing landscape:​ CarEdge Survey

• Rising Negative Equity: As of Q4 2024, 39% of drivers with financed vehicles are "underwater," meaning they owe more on their loans than their vehicles are worth. This is an increase from 31% in Q3 2024. CarEdge Survey

• Impact on Recent Buyers: For vehicles purchased since 2022, the rate of negative equity rises to 44%, indicating newer car buyers are particularly vulnerable. ​CarEdge Report

• Electric Vehicle Owners at Higher Risk: Electric vehicle (EV) owners are disproportionately affected, with 54% experiencing negative equity, up from 46% in the previous quarter. ​​CarEdge Report

• Overestimation of Vehicle Value: A significant 60% of drivers overestimate their car's value, with 18% overestimating by $5,000 or more, and 7% by over $10,000. This misperception can lead to financial strain when trading in or selling vehicles. ​CarEdge Report 

• Long Loan Terms Contribute to Negative Equity: Borrowers with 84-month loans face a median negative equity of -$8,485, while those with 36-month loans have a positive equity of $7,783. Longer loan terms may offer lower monthly payments but increase the risk of negative equity over time. ​CarEdge Report 

Navigating Auto Financing Decisions

These findings underscore the importance of making informed decisions when financing a vehicle. Consulting with independent automotive finance experts can help buyers understand the implications of loan terms, vehicle depreciation, and market trends, ultimately aiding in avoiding the pitfalls of negative equity.​  Usually chasing the lowest monthly payment options when evaluating cars, leads to finding yourself upside down in your car loan.