Car Debt Is Piling Up as More Americans Owe Thousands More Than Vehicles Are Worth

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Car Debt Is Piling Up as More Americans Owe Thousands More Than Vehicles Are Worth -Yahoo! Finance

With rising interest rates and subsequent higher car loan costs, could the car market be another financial bubble waiting to burst? This factor - coupled with the sea of car loans that are upside down - could be a surefire recipe for disaster.

(Bloomberg) -- Chris Martin knew he needed a bigger car as the birth of his fourth child approached, but he and his wife were already $14,000 underwater on their two vehicles.

So the couple proposed an unusual two-for-one deal with an Atlanta-area auto dealer in 2020: trading in both of their vehicles so they could afford a three-row Ford Explorer. Their total loan after factoring in negative equity, a service contract, fees and other costs ballooned to $66,000 on the $49,000 Explorer.

Despite a lot of progress on the debt, he feels uneasy. "I don't want to be paying interest on cars that I don't even have anymore," said Martin, a 36-year-old data engineer.

The build-up in negative equity - or the amount that debt exceeds a vehicle's value - is rattling consumers and raising alarms within the industry. Though it's not unusual for drivers to carry negative equity, some dealers say more people are arriving at their lots up to $10,000 underwater, or "upside down," on their trade-ins. They're buying at still-sky-high prices and rolling debt from one car to another and even onto a third. Loans are commonly stretching to seven years.