Buying a car now means you'll likely be underwater soon, analyst warns. Here's why.

Buying a car now means you'll likely be underwater soon, analyst warns. Here's why.

If you recently took out a loan to buy a car, especially a Tesla, you’ll likely be paying more for that car than it's worth soon. In the final three months

If you recently took out a loan to buy a car, especially a Tesla, you’ll likely be paying more for that car than it's worth soon. In the final three months

of 2022, nearly 16% of consumers who financed a new vehicle and 5.4% who financed a used one committed to monthly payments of at least $1,000, according to Edmunds, which tracks

of 2022, nearly 16% of consumers who financed a new vehicle and 5.4% who financed a used one committed to monthly payments of at least $1,000, according to Edmunds, which tracks

automotive inventory and information. Both figures are record highs, it said.  The higher payments come as vehicle values are dropping, which means consumers

automotive inventory and information. Both figures are record highs, it said.  The higher payments come as vehicle values are dropping, which means consumers

are left paying the original balance of their loans -- and now at higher interest rates -- even if their vehicles aren’t worth as much anymore. Used car prices dropped 2.5% in

are left paying the original balance of their loans -- and now at higher interest rates -- even if their vehicles aren’t worth as much anymore. Used car prices dropped 2.5% in

December from November and new car prices dipped 0.1%, according to the Bureau of Labor Statistics.  Start the day smarter. Get all the news you need in your inbox each

December from November and new car prices dipped 0.1%, according to the Bureau of Labor Statistics.  Start the day smarter. Get all the news you need in your inbox each

morning. It's a classic "negative equity," situation in which the value of an asset used to secure a loan is less than the outstanding balance on the loan. Also

morning. It's a classic "negative equity," situation in which the value of an asset used to secure a loan is less than the outstanding balance on the loan. Also

known as being "underwater" or "upside down," the scenario is bad for debtors: If they can't make the payments, then they can't sell the asset and raise enough money to get out of

known as being "underwater" or "upside down," the scenario is bad for debtors: If they can't make the payments, then they can't sell the asset and raise enough money to get out of

debt. Lenders will likely repossess the vehicle, leaving the driver with monthly debt payments -- and no car to drive. “We are only seeing the tip of the

debt. Lenders will likely repossess the vehicle, leaving the driver with monthly debt payments -- and no car to drive. “We are only seeing the tip of the

negative-equity iceberg,” with car prices, especially used car prices, expected to keep dropping, said Ivan Drury, Edmunds' director of insights.  

negative-equity iceberg,” with car prices, especially used car prices, expected to keep dropping, said Ivan Drury, Edmunds' director of insights.