The combined impact of record-high pricing and soaring interest rates has created a massive problem for new car shoppers over the past couple of years. In fact, new car shoppers are quickly finding that they’re facing huge monthly payments if they choose to finance those purchases, but that isn’t the only problem at least a quarter of them are also staring out right now – in fact, many of those same folks are underwater as well.
According to new data from Edmunds, 23.9 percent of consumers who financed a new vehicle in Q2 2024 with a trade-in had negative equity on those vehicles, which is the highest since Q1 2021, when that same figure was 31.9 percent. Among those owners, the average amount of money they owe on their upside down loans grew from $4,487 in Q2 2022 to a new record high of $6,255 in Q2 2024, and EV owners had it even worse, averaging $10,326 in negative equity in the last quarter, compared to $6,018 for ICE owners.
Much of this stems from rapid depreciation, as well as declining values overall, as average transaction pricing has fallen in recent months. Even more problematic, the average age of vehicle trade-ins with negative equity grew from 3.4 years in Q2 2023 to 3.7 years in Q2 2024. However, as Edmunds points out, not all is lost for those that are stuck with negative equity, as there is at least one good way to right that proverbial ship.
“Negative equity only becomes a problem when you trade in a vehicle too soon,” said Ivan Drury, Edmunds’ director of insights. “If you’re worried about being underwater on your current car loan, your best bet is to keep your vehicle as long as possible and keep up with regular maintenance. And if you’re concerned about the depreciation that comes with buying an EV but still want to go green, consider buying used to offset some of that depreciation, or avoid ownership altogether and lease instead.”
We’ll have more on the state of new vehicle affordability soon, so be sure and subscribe to Ford Authority for 24/7 Ford news coverage.
Comments
Only idiots would have bought with record high car and truck prices along with record high interest rates. Wait until all these vehicles end up on dealers’ lots again.
Some had wrecks and had to buy cars. Otherwise, I agree and dealerships adding to the MSRP didn’t help either. Many are still doing that.
Agreed, some people were forced to buy. Some weren’t and are now paying the piper. So many people think that when they have a child they have to rush out and buy the biggest 3 row SUV possible for $40-50-60K+. Insane. When my first was born, i had a VW GTi as the family car. After #2 came, i got a Subaru 4 door turbo RX sedan. Kids are small, so they don’t need that much room…LOL. I had a period where i liked getting new cars and so got a little upside down. I put a stop to that and had 1 nice “family” car that my wife drove and we used for family. I bought beaters cheap to drive to work and fixed them up and sold them, usually at a small profit. I needed a car in 2016 so i bought a used 2014 Toyota Prius C for $13K. I had saved enough to pay cash for it. I drove that car until 2023, banking a pretend car payment every month. I was able to buy a new Ford Maverick hybrid truck and pay cash for it, having saved up for 7 years. I turned my Prius over to my youngest son for cheap (he is an engineer and makes good money) so that he could drive cheap also. Having to go out and buy $50K + vehicles can really hurt you financially, unless you are earning $200K or more. Not many can claim to do that.