Repairer Driven News
« Back « PREV Article  |  NEXT Article »

Edmunds: Negative equity increased in Q3

By on
Announcements | Market Trends
Share This:

The average amount owed on upside-down loans climbed to an all-time high of $6,458 during the third quarter, according to new report by Edmunds

Edmunds says that’s compared to $6,255 last quarter and $5,808 a year ago. Twenty-four percent of trade-ins toward new vehicle purchases had negative equity, up from 23.9% last quarter and 18.5% last year, according to the report. 

Twenty-two percent of owners, or 1 in 5, with negative equity owed more than $10,000 on their car loans and 7.5% owed more than $15,000 the report says. 

“Consumers owing a grand or two more than their cars are worth isn’t the end of the world but seeing such a notable share of individuals affected at the $10,000 or even $15,000 level is nothing short of alarming,” said Jessica Caldwell, Edmunds’ head of insights, in the release. “A combination of uncontrollable market factors and misguided consumer financial decisions are contributing to the rise of this troubling trend.”

Caldwell said many consumers who purchased new vehicles during the “inventory crunch” of 2021-2022 paid over MSRP. She added that trade-in values for near-new vehicles are taking a hit as automakers reintroduce incentives. 

“On the consumer behavior side, car shoppers have been increasingly opting into longer loan terms to reduce monthly payments, and they’re also trading in their vehicles earlier than is financially prudent,” Caldwell said.

The report notes that negative equity is prevalent across all vehicle types being traded in. Midsize SUVs, compact SUVs, and large trucks made up 19.5%, 17.3%, and 10.3% respectively in Q3 2024. 

“It’s easy to assume that only specific consumers trading in higher-ticket luxury vehicles are the ones underwater on their car loans but the reality is that this is a problem across the board,” said Ivan Drury, Edmunds’ director of insights, in the release. 

Edmunds experts advise consumers worried about negative equity to hold onto their vehicles as long as possible while keeping up with regular maintenance to avoid additional drops in value. 

“With prices and interest rates being as high as they are, it’s critical for consumers to think beyond the monthly payment and be honest with themselves about their ownership habits,” said Drury. “A seven-year auto loan is a one-way ticket to negative equity if you know you’re not the type of person to keep a vehicle for that long.

“Shop around for incentives and lower APR financing, though be mindful those are less common offerings in today’s market. Consider vehicles proven to have higher resale values or ones that offer other financial benefits like better mpg or lower insurance costs. But most importantly: find a car you really want and like because if you don’t, you’ll probably end up making the same mistake of trading in your newish vehicle too soon.”

IMAGES

Photo courtesy of Jinda Noipho/iStock

Share This: