A recently released survey has found that a growing number of car owners now owe more on their auto loans than what their vehicles are actually worth.
The survey comes from the online car buying site CarEdge, which noted that 31% of Americans who own a vehicle have higher monthly payments than what the car is worth.
“As vehicle prices soar and depreciation accelerates, more car owners are finding themselves owing more on their loans than their cars are worth,” CarEdge wrote in its survey.
The survey also found that in the past two years, 39% of vehicles that were bought and financed are currently in negative equity. Bankrate highlights that being in negative equity on an asset can make it difficult to refinance or sell, meaning most owners end up finding themselves trapped.
“As vehicle prices increase and long loan terms become more common, the risk of being underwater is higher than ever,” the CarEdge survey said.
When it comes to the vehicles that are more likely to have negative equity, the survey found that EV owners are in a far worse spot, with 46% being underwater.
As for brands, Tesla and BMW owners have the highest rates of negative equity.
Part of the reason for the rapid increase of car owners having negative equity could be the recent rise in car prices, especially used cars.
As inflation rose, the car market became one of the most volatile, with prices still falling to where they were pre-pandemic.
According to the latest figures from the Bureau of Labor Statistics’s CPI, the price for new vehicles fell by 1.2% in August compared to August 2023. For used cars, the prices fell by 10.4%.
The survey also found that 61% of drivers overestimate how much their car is worth, with roughly 17% thinking their vehicle is worth at least $5,000 more than its true trade-in value.
This misunderstanding can lead to unpleasant surprises when they decide it’s time to trade in or sell their vehicle, the site warned.