Where the hell did all my money go? Oh, my car ate it!

Buying a car can be a painful and uncomfortable process. Salespeople may hound you right from the start about how much you want to pay each month before you even have selected a car you are interested in. And then there are many games that can be played when it comes to your trade-in. This is where negative equity comes into play, but in your car rather than in your home — called “being upside down!”

If being upside down doesn’t sound good, then you are off to the right start. Tactical Bulls has a goal for everyone to be financially secure on their own when it comes time for retirement. If you just want the government to take care of you, you are probably not going to like how the government takes care of you. And about those government mandates on the move to electric vehicles…

THE RAW DATA IS BAD

According to Edmunds Q2-2024 data, more and more car owners are upside down on their car loans. Remember when used car prices only went up? Now that those cars are being traded in the values of many used cars have continue to normalize. If having an extra $100 payment per month (or more) sounds bad for regular cars, it looks even worse for electric vehicle (EV) owners.

Edmunds showed that in Q2-2024 Some 23.9% of new vehicle sales with a trade-in had negative equity. If 1-in-4 doesn’t seem high, it should. That was the highest reading since the 31.9% rate in Q1-2021. Car prices have risen along with inflation. The average upside-down loan also reached $6,255 versus $4,487 a year earlier.

Do the math of an extra $6,255 on a car loan at 60 months. That’s an extra $104.25 per month if you have a 0.00% loan, which of course you will no longer find in the current high-rate economy. Now do the math on an extra $6,255 with a 7% interest rate for 5 years (60 months) — that is another $140.73 per month just because your old car price didn’t keep up with the trade-in values.

WAY WORSE FOR EV OWNERS

Those government mandates and trends from auto-makers to move to all-electric vehicle (EV) ownership in the years ahead is even worse when it comes to how bad the upside down tally is. Edmunds data showed that the Q2-2024 data on EV owners nearly doubled an average upside down level of $10,326 versus $5,469 just a year earlier.

Let’s do the same math above on a 5-year or 60-month car loan. An extra $10,326 added on to a car loan even at 0.00% (again, good luck finding that now) is $172.10 per month. And at the same 7% as outlined above, that’s now an extra $232.33 per month on the 60-month scale.

WHAT TO DO ABOUT IT

It really looks like consumers just are not wanting to stay in the EVs compared to gas-powered cars. Edmunds showed that the average trade-in age of EVs was just 2.1 years versus 3.7 years for gasoline-powered vehicles. Edmunds shows that this was exacerbated by consumers paying inflated prices for new vehicles in the last few years. The outcome will be owning the same car for longer in an effort to avoid trading the same under water car in when it’s at its steepest point on the depreciation curve.

There may be even more bad news for EV owners who are eventually going to want a new car, EV or not. New EVs being sold with incentives are shown by Edmunds to be making the problem worse as the EV values are even further depressed. Edmunds even noted that this situation “is certainly not making a good case for the fledgling EV market, which is already struggling to gain consumer buy-in.”

The remedy to help keeping you from losing your ass(ets) too fast — keep your vehicle as long as possible and keep up with regular maintenance. If you are considering buying an EV for going green, Edmunds suggests that you should buy a used EV to offset some of that depreciation. If that’s not a warning enough for EV ownership, Edmunds suggests you should just avoid ownership altogether and just lease it.