Underwater Car Loans Hit Four-Year High in New Sign of Distress

Core Insights - The automotive industry is experiencing significant stress, with a rising number of Americans trading in vehicles that are worth less than what they owe, indicating financial strain among consumers [2][4]. - The average age of cars on the road has surpassed 12 years, as buyers are increasingly turning to used cars or holding onto older vehicles due to the decline in budget models and rising new car prices [1][6]. - The average new car price has exceeded $50,000 for the first time, reflecting a more than 25% increase over the past five years, driven by the popularity of expensive trucks and SUVs [5]. Trade-In and Debt Situation - Over 28% of trade-ins for new car purchases carried negative equity, the highest level since Q1 2021, with the average amount owed on these underwater loans reaching a record high of $6,905 [3]. - The high levels of debt associated with trade-ins are raising alarms, as consumers are struggling with affordability amid rising costs and interest rates [4][7]. Loan Trends and Consumer Behavior - Consumers are extending the length of their auto loans to seven years or more, with the average monthly payment for new cars hitting $766, the highest in 15 months [6]. - Auto loan delinquencies and repossessions have surged this year, exacerbated by high interest rates and the financial choices made during the pandemic when vehicle prices were inflated [7].