Americans Are Severely Underwater on Their Car Loans

On average, today's car customer owes $5,500 on their trade-in, a number that hasn't been seen since before the pandemic.

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Image: David Zalubowski (AP)

It’s getting bad out there, folks. New cars continue to get more expensive, the average monthly car payment is heading towards $800, Millennials and Zoomers are skipping their car payments, and the number of folks making monthly car payments greater than $1,000 is the highest it’s been in a decade. But people are still buying cars, and the situation may be worsening: Bloomberg reports that a record number of Americans are severely upside-down on their auto loans.

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The amount people underwater is concerning to everyone, from the car owners to the dealers financing these customers. Bloomberg says dealers are reporting more buyers than ever rolling up to lots with $10,000 and more in negative equity looking to trade their vehicle and roll that debt into another loan. Take one owner Bloomberg spoke with. After he realized his family needed a bigger vehicle, they did something unusual: they traded in both of their vehicles for a Ford Explorer. Including what was owed on the two cars, plus the registration and all other dealer fees, the couple ended up paying $66,000 for a $49,000 Explorer.

That family isn’t alone, either. Data from Edmunds shows that the average amount Americans owe on their auto loans is quickly approaching pre-pandemic levels. After dropping below $5,000 between April and December 2021, the average amount has started to climb again reaching $5,500 at the end of 2022. Rising vehicle prices and longer loan terms are also worrying those in the industry. But it depends on the buyer base.

Pete Kesterson, general manager of a dealership group in Falls Church, Virginia worries about his Kia customers more than he does his Volvo customers.

Kesterson says that Volvo customers usually pay cash for their vehicles; Kia customers tend to finance more. While they’re having more sales, he’s concerned about it all coming back to haunt the economy.


“It’s going to come, and it’s going to bite us. Now, we’re selling the cars for so much more, and financing for longer, at a much higher interest rate. There are some challenges coming down the pike,” he told Bloomberg.

But it’s not all the fault of the buyer. Some models and brands have horrible resale value, which a buyer has no control over. Other factors like dealer markups — which lenders don’t usually approve if the markup is greater than the value of the car — make things worse. If buyers continue down the path they’re on, the auto loan bubble will pop. It’s no longer a matter of if it will anymore. It’s when.