According to the data, 1 in 4 new car owners owe more than their car is worth

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Car debt has hit a record high, with more car owners owing more on their vehicles than they’re worth, new data released Wednesday showed.

According to a press release from Edmunds, an online car-buying resource, more than one in four new vehicle owners owe more on their cars than they’re worth, with more than $10,000 in debt.

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John Drury, Edmunds’ director of Insights, said the trend is due to loans taken out during the COVID-19 pandemic and people selling their cars too quickly.

“This is largely due to buyers trading in cars too quickly or taking out loans taken out during the crazy auto market pandemic when prices were at record highs. These choices are now catching up, making it difficult to buy again without piling on even more debt,” Drury said in a news release.

Edmunds suggests canceling add-ons such as extended warranties, service contracts and wheel and tire protection before returning the car to improve its value for money.

Joseph Yoon, Edmunds’ customer insights analyst, says consumers can still reduce their debt.

“For many car owners, there is no quick fix when they find themselves underwater. It’s about minimizing how much deeper you sink,” Yoon said.

“If you can, wait until you’ve paid off most of your balance before switching. But if you do need to replace your car, make sure your next purchase fits your budget, not just your needs. Choosing the right vehicle can prevent a short-term solution from becoming a long-term failure,” he added.

According to Carfax, a vehicle listing and appraisal company, the value of a new car drops about 20% in the first year and then 15% in each subsequent year.

The average new car price is now above $50,000 for the first time, according to Kelly Blue Book, a vehicle information service, and the average monthly car payment is $749, according to Experian, a major credit reporting bureau.

Source: abcnews.go.com