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A report released by Edmunds.com on Tuesday revealed that an increasing number of Americans with auto loans owe more than the value of their vehicles. According to the report, the average amount owed on upside-down loans reached an all-time high of $6,458 in the third quarter, up from $6,255 in the previous quarter and $5,808 a year earlier.

Being underwater on a car loan is not necessarily a cause for concern, but the growing number of consumers in this situation signals financial pressure on American households. The Federal Reserve recently reported a substantial increase in delinquency rates on auto loans, surpassing pre-pandemic levels and rising above historical lows seen during the global health crisis.

Jessica Caldwell, head of insights at Edmunds, expressed concern over the significant number of consumers facing negative equity of $10,000 or more on their auto loans. The report indicates that more than one in five consumers with negative equity owe over $10,000, with 7.5% having negative equity exceeding $15,000.

To address upside-down car loans, consumers are advised to keep their vehicles for longer periods and ensure regular maintenance to minimize depreciation and additional costs. Ivan Drury, director of insights at Edmunds, emphasized the importance of considering ownership habits beyond the monthly payment, especially with high prices and Interest rates.

The current prevalence of upside-down loans can be attributed to consumers who purchased new vehicles in 2021 and 2022 amidst inventory shortages and parts delays caused by the pandemic. Many buyers paid full price or more for their vehicles, leading to faster depreciation than expected as the auto industry adjusted and inventories normalized.

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