About a third of Americans with an auto loan owe more than their vehicle is worth, according to a new economic analysis.
On Oct. 29, The Kobeissi Letter, an economic and trading analysis service, posted on social media that its analysis indicates that about 33 percent of Americans who financed their cars are now behind on their loans. That translates to about 31 million Americans, according to the note’s interpretation of data maintained by the Consumer Financial Protection Bureau.
Adam Kobeissi, the organization’s editor-in-chief, told The Epoch Times the analysis based that figure upon data published by Edmunds.
Edmunds said in an Oct. 15 release that in the third quarter of 2024, the average amount owed on an upside-down loan hit an all-time high. In that quarter, the average underwater loan amount was $6,458. The previous record of $6,255 was set in the second quarter of 2024.
Moreover, according to Edmunds, 22 percent of vehicle owners in a negative equity situation owe more than $10,000 on their car loans, and 7.5 percent owe more than $15,000.
In a release, Edmunds’s head of insights, Jessica Caldwell, said the loan problem is based on both “uncontrollable” market factors and “misguided” consumer financial decisions.
“Many consumers who purchased new vehicles during the inventory crunch of 2021–2022 paid over MSRP [manufacturer’s suggested retail price], so they didn’t chip away at the principle,” Caldwell said in a release. “Car shoppers have been increasingly opting into longer loan terms to reduce monthly payments, and they’re also trading in their vehicles earlier than is financially prudent.”
Kobeissi told The Epoch Times this plays into an overall troubling debt picture for U.S. consumers. Now, he said, Americans are collectively carrying a record amount of more than $600 billion in credit card debt from month to month, with an average interest rate close to 25 percent.
Published on Oct. 1, Edmunds’s analysis of its debt data for the third quarter of 2024 found Americans are taking on close to record interest rates when buying a new vehicle—the average annual percentage rate agreed to on an auto loan in that quarter was 7 percent—and they are signing up for terms lasting as long as 84 months.
Edmunds said in an Oct. 1 release that at least 17 percent of new-vehicle shoppers are making monthly payments of more than $1,000, which is close to a record amount.
Kobeissi said the price of new cars—along with vehicle insurance, upkeep, and repairs—continues to outpace overall inflation by a significant margin.
In August, The Epoch Times reported that the price of new cars rose by more than 40 percent between January 2021 and May 2024. Meanwhile, the cost of used vehicles increased by 52 percent over the same period.
“You have record high prices ... with historically high rates,” Kobeissi said. “That’s a nightmare for affordability.”
Americans continue to deal with a constantly rising cost of goods. According to the U.S. Bureau of Labor Statistics’s Consumer Price Index (CPI), the cost of the basket of consumer goods increased by about 2.4 percent between September 2023 and September 2024. However, the cost of living, as measured by the CPI, has increased by 21 percent since September 2020.
In September, the Federal Reserve’s policy-making Federal Open Markets Committee (FOMC) cut interest rates by half a percentage point. It was the first such cut since March 2020.
At the end of September, Federal Reserve Chairman Jerome Powell said the Fed may continue to cut interest rates in 2024 as the FOMC becomes more confident that inflation is under control.
