About a third of Americans trading in a car today owe more than it’s worth. This number has jumped more than 40% since 2021. Being $40,000 underwater on a pickup truck is a scary sign of a growing trend, and that’s just one example. It’s a difficult reality- more Americans are turning in their cars to buy new ones and finding out their vehicles aren’t worth what they owe.
About 30% of borrowers in the first quarter who traded in a car owe more on their loan than the car is worth, according to the car-shopping website Edmunds. Those borrowers owed about $7,200 on average before getting a new loan, a 42% jump compared with the same period five years prior.
More car buyers are extending the terms of their loan to keep their monthly payments manageable. In the first quarter, the average loan was 70 months on new cars, according to data from Edmunds.
You also had dealerships overcharging during Covid, which has resulted in negative equity for many car buyers. Consumers who are underwater on their loan end up paying more on average after rolling over the negative equity into their next car, compounding their debt even more.
The current car bubble can be attributed to lack of inventory during the pandemic, which led to a severe shortage of new cars available on dealer lots. Vehicle prices soared in response, and buyers—who either had the disposable income to spend or lacked other transportation during lockdowns—were willing to pay.
Consumers who rolled over negative equity from a prior vehicle loan were more than twice as likely to wind up having their car repossessed within two years, compared with those who pocketed money on a trade-in, a 2024 study from the Consumer Financial Protection Bureau found.
Click here to read more.
If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. To learn more, visit the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
