Car loans are underwater for many homeowners

Americans have a big car debt problem right now. A new survey shows that 31% of American drivers who have financed their car are uunderwater on their loans. The problem is even worse for Owners of electric vehicles – 46% of these people have negative equity electric cars. Further the problem is that more than half of the drivers surveyed overestimated themselves the value of the vehicle. Rough.

CarEdge – a car buying guidance website – has done study in partnership with Black Book. They talked to around 1,000 drivers to find out how many financial problems some people have been in when it came to their cars. The results are… not super great.

Here’s what the survey found when it comes to negative equity:

According to our survey, 31% of drivers who have financed their vehicles are currently in negative equity. That number rises to 39% for vehicles purchased from 2022, indicating that newer car buyers are particularly vulnerable. As vehicle prices rise and long loan terms become more common, the risk of being underwater is greater than ever.

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Electric vehicle owners are much more likely to be underwater. Of the EV owners we surveyed, 46% are currently in negative equity, with an average loan-to-value (LTV) ratio of 0.94 – higher than the general market’s 0.73. Luxury car brands like Tesla and BMW also have higher negative equity ratios compared to budget brands like Toyota and Honda.

CarEdge says loan terms have a direct impact the equity of a vehicle. Car owners with 84-month loan terms are about $5,000 underwater on average. On the other hand, buyers with a 36-month loan typically have equity of about $12,340. Sure, longer loans lower your monthly payments, but they increase the likelihood of negative equity in the long run. This is not something you should typically want from a car purchase.

Something that really doesn’t help matters is that most people are vastly overestimating what their cars are worth in the real world. CarEdge found that 61% of those surveyed believe their car is worth more than it actually is. 17% say their car is worth at least $5,000 more than the actual trade-in value. Not only is it unpleasant to find out when it’s time to sell the car, but it can also lead to more buyers rolling negative equity into their next car loan and continuing the cycle.

A version of this article originally appeared on Jalopnik.