With new car prices at an all-time high and interest rates still near historic highs, it's getting harder and harder to buy a new vehicle. At the same time, a growing number of Americans can't even pay off their old one. A new report finds about one-third (31%) of car loans are now underwater, meaning they owe more than the vehicle is worth. For vehicles purchased since 2022, about 4-in-10 have negative loan equity.
"This is not uncommon," says KTRH Car Pro Jerry Reynolds. "People were paying the MSRP for new cars, interest rates are high, the used car market has dropped this year...you add all that together and more people are upside down."
If you're one of those with an upside-down car loan and you need (or want) a new vehicle, you have options depending on how far under water your loan is. "The quickest way out from an underwater loan, if you don't drive too many miles, is if you lease your next vehicle," says Reynolds. "Because a lease is typically three years, so if you have to roll some negative equity from one loan into a lease, in three years it's all gone. You're free and clear with the world."
Another option if your negative equity is less than $5,000 is to look at vehicles with rebates. "If you purchase a new vehicle that's got rebates, the rebates can make up that (negative) difference," says Reynolds.
However, those options only work if your negative equity is relatively low. "If it's more than $5,000, I would tell people just hang on and don't do anything until the car value and the payoff get closer together," he tells KTRH.
Photo: Caiaimage