The pandemic auto boom’s ugly aftermath has finally rolled into view, and it’s a bumpy ride for millions of Americans. Those shiny cars bought during the frenzy are now financial ball-and-chains, with negative equity and sky-high monthly payments dragging owners down. Adding to the misery, inflation and high interest rates are squeezing low- and middle-income buyers even tighter. According to CarEdge, a jaw-dropping 39% of vehicles financed since 2022 have negative equity. It’s even worse for electric vehicles—46% are underwater in 2024.
The affordability gap is glaring. CarEdge and Edmunds report that 60% of auto loans and 34% of leases exceed what most consumers aim to pay. The fallout is hammering finance companies and auto-backed securities, with Tesla loans looking especially grim, while brands like Toyota and Ford are holding steady—at least for now.
Meanwhile, the used car market is tanking, dragging recovery rates down with it. Manheim’s Used Vehicle Value Index has plummeted since its 2022 peak, and repossessions are surging. Cox reports that repos jumped 23% in the first half of 2024 compared to last year, even surpassing pre-pandemic levels. Subprime borrowers, already on shaky ground, are falling behind in droves. Fitch Ratings says 5.62% of subprime borrowers were 60 days late on payments as of June—down slightly from February’s record but still alarmingly high.
Skyrocketing interest rates aren’t helping. Bankrate data shows that new car loans average 7.94%, while used car loans average a brutal 12%. Monthly payments are through the roof—$739 for new cars and $549 for used ones. For many, this debt-fueled splurge on record-priced vehicles has turned into a financial nightmare.
The Consumer Financial Protection Bureau is raising red flags about subprime borrowers in particular. Unless the Federal Reserve steps in with rate cuts—things will only get uglier. Buckle up, folks. This negative equity storm isn’t clearing up anytime soon.
