Car owners can't afford their loans any more. It's bad for everyone.

[ryannix123]

I've shared that my 2022 MME Premium is worth about $16k less than I owe. This is a growing and troubling trend.

"The share of trade-ins with "negative equity" — meaning the owner owes much more on their loan than their car is worth — was hovering at about 25% at the end of 2024, according to data from the car-shopping website Edmunds. That was up from about 20% in 2023."

https://apple.news/AywQqA_ktSY-gA86ZxYN4Gg

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[ipca204]

Nothing new here, folks... cars have almost always been a depreciating asset..

 

[ipca204]

Easy way to "solve" this "problem".... drive it until the wheels fall off....

 

[zvez]

I've shared that my 2022 MME Premium is worth about $16k less than I owe. This is a growing and troubling trend.

"The share of trade-ins with "negative equity" — meaning the owner owes much more on their loan than their car is worth — was hovering at about 25% at the end of 2024, according to data from the car-shopping website Edmunds. That was up from about 20% in 2023."

https://apple.news/AywQqA_ktSY-gA86ZxYN4Gg

I guess I just don't understand why someone would trade a car they're underwater in, rolling the negative equity into the next car. It's crazy and irresponsible. Just keep driving it.

 

[Maui]

2 year old phone also have a high level of depreciation. In general, few seem to want the older model of anything... especially when the technology is evolving so quickly. With this level of evolution in the EV space, leases make more sense, IMO.

 

[geeklifer]

The post title and the actual post are really 2 different issues. The title's issue can be avoided by not overextending yourself on a loan. The actual post talks about depreciation, and is always a thing to some degree. If your car loan is "underwater", then don't trade it in unless you absolutely have to. Problem solved.

I took a loan I could afford, and yes, I'm now technically "underwater" due to it depreciating faster than I'm paying it off. Oh well. It's a car, and that can happen. There's also no guarantee that gas prices won't spike tomorrow and my EV's value won't suddenly spike as a result.

Don't go into any car purchase thinking about it as an investment. Think about it as something you can afford and would like to drive for an extended period.

 

[Shepherd]

True, but it’s also true of every other depreciating asset that has losses on paper. Think about your car’s long-term utility and your driving enjoyment instead. It’s like using dollars as the only measure of GDP. There are many other variables than money, like happiness and health, that are important. If you’re one of those people who check your retirement account every day, then stop that too, and you’ll be much happier.

 

[ryannix123]

2 year old phone also have a high level of depreciation. In general, few seem to want the older model of anything... especially when the technology is evolving so quickly. With this level of evolution in the EV space, leases make more sense, IMO.

Even iPhones don't drop that much in value. And really, the software-defined vehicles mean the internal hardware doesn't change that much. Even phone innovation has dramatically slowed in the last four years.

 

[ryannix123]

The post title and the actual post are really 2 different issues. The title's issue can be avoided by not overextending yourself on a loan. The actual post talks about depreciation, and is always a thing to some degree. If your car loan is "underwater", then don't trade it in unless you absolutely have to. Problem solved.

I took a loan I could afford, and yes, I'm now technically "underwater" due to it depreciating faster than I'm paying it off. Oh well. It's a car, and that can happen. There's also no guarantee that gas prices won't spike tomorrow and my EV's value won't suddenly spike as a result.

Don't go into any car purchase thinking about it as an investment. Think about it as something you can afford and would like to drive for an extended period.

Cars are a depreciating liability; I get that. Still, the precipitous drop in the value of the MME is astonishing. And clearly, as the article illustrates, it's all cars right now. EVs are especially bad, though.

 

[geeklifer]

Cars are a depreciating liability; I get that. Still, the precipitous drop in the value of the MME is astonishing. And clearly, as the article illustrates, it's all cars right now. EVs are especially bad, though.

Depreciation in a car is only realized when you sell or trade it. If you don't need to sell or trade, then don't.
Really, this is so much hand-wringing over nothing. Rolling over old car loan debt into new is nearly always a bad idea, regardless of the level of depreciation. Yes, we might have to hold onto our cars a little longer than we used to, but is that really a bad thing?

 

[Shepherd]

The only way this would affect me is if my car were totaled in a wreck. I don’t have gap insurance. when I bought the car I took a 0% loan for the sticker price and extended warranty.

I sold my previous vehicle for 18K and I put that in a money market, so you could say that I am self insuring in the unlikely event the car is totaled. Yes it would hurt to lose the difference, but it wouldn’t be a catastrophe.

 

[superdave80]

This is just the result of the COVID vehicle shortage. People (including me) overpaid for cars because of the limited supply. Roll forward a few years, cars have returned to a more 'normal' value, causing the used value of vehicles to drop faster than they are being paid off. This will shake itself out Soon (tm).

 

[Aubury]

Easy way to "solve" this "problem".... drive it until the wheels fall off....

Or buy used. Even a year old car will have a significant chunk of the depreciation taken off from the brand new price.

 

[Guss-E 2021]

Good thing cars are tools and not investments then (like all durable goods).

 

[Dear_OP]

Alot of common sense inputs here. But as you know vehicles is more to do with emotions than dollars. Else we'd be rolling around on Chevy Cavaliers. Ahh I miss that college old steed.

Not every automakers have adopted let alone successfully deployed SDV EVs. I can only think of Tesla, Rivian, BYD, and other Chinese makers. Most are still reusing ICE platform or a derivative. Software development is a weak link for traditional mfgs. VW collapsed its software division and instead bought a $5B stake on Rivian. GM fired a bunch of its software tech recently too.

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