Edmunds research found that a quarter of US residents who own a car, still owe a significant amount of money to the bank. Analysts estimate that in just a year and a half, the number of transactions with negative capital increased from 18.5% to 24.2%, i.e. many Americans ended up selling their car at a loss and were forced to pay extra out of pocket to close the loan.
Auto loan debt has hit an all-time high of an average of $6,458, and the problem of trade-in losses affects every segment from compact crossovers to full-size pickups. About 22% of Americans owe at least $10,000 on their loan, and 7.5% owe more than $15,000, and these are net losses that cannot be covered by selling the car.
Experts explain the situation as a bad time to buy: during the coronavirus pandemic and in the immediate aftermath, there was a shortage of microchips, cars were sold well above the recommended retail price, and now those same customers are suffering because of the low trade-in price. In addition, many Americans take “long-term“ loans, but they sell the car earlier, which also leads to losses.
Analysts advise to approach loans carefully and not be tempted by a low monthly payment, because a car loan for seven years will almost certainly not be profitable if you have to change the car earlier. By American standards, the prime rate is high: it is currently five percent.