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Q3 2024 auto finance data from Edmunds highlights a concerning trend: the number of consumers finding themselves upside down on their auto loans is on the rise. 24.2% of trade-ins for new vehicle purchases had negative equity in Q3, and the average amount owed reached an all-time high of $6,458. Even more alarming, over 1 in 5 consumers with negative equity owed $10,000 or more on their loans when trading in their vehicle last quarter. So, what’s driving this trend? The answer is a combination of market factors and consumer behavior: 📈 Market dynamics: During the 2021-2022 inventory crunch, many buyers paid over MSRP, delaying their ability to chip away at the principal of their loans. Now that inventory has normalized and automakers have reintroduced incentives, trade-in values for near-new vehicles are dropping. 🛒 Consumer habits: Many shoppers are opting for longer (84 month) loan terms to reduce their monthly payments, and they’re also trading in their vehicles earlier than is financially wise. It's crucial for dealers and automakers to educate consumers on the risks of negative equity. That can be done by providing guidance on: 🗓️ Appropriate loan terms: Help consumers look beyond the monthly payment. In addition to demonstrating the total cost of interest over the course of a loan, shoppers should be advised on loan durations that align with their ownership habits. 💲Resale values and reduced costs: Steer consumers toward vehicles with proven higher resale values, better fuel efficiency, or lower insurance costs. ⚖️ Prioritize purchase satisfaction: Emphasize the importance of selecting a car the buyer truly wants and plans to keep. Remind customers that trading in too soon, especially if they're unhappy with the vehicle, can lead to financial losses and perpetuate the negative equity cycle. Keeping consumers informed can lead to smarter financial decisions, ultimately benefiting the broader automotive ecosystem. https://edmu.in/4f5yUBy #EdmundsInsights