New financial reports in America showing data of loan holders in the country who applied for the loan to purchase a car and their payment is still pending. There are many Americans facing the Underwater situation or upside down situation to pay the car loans to the banks. A recent survey by Edmunds found that more Americans are in debt on their car loans, with 24.2% of those trading in their vehicles owing more than their cars are worth, which is an increase from earlier this year and last year.
The average debt on these trade-ins has reached a record high of $6,458, with many people owing even more—22% owe at least $10,000, and 7.5% owe $15,000 or more. Since auto loans make up a significant portion of consumer debt, this trend reflects the financial struggles many borrowers face.
Why are so many Americans underwater on car loans?
According to the reports More than 22% Americans have to pay at least $10000 and approximately 7.5% Americans have to pay more than $15000. This is very challenging situation which is facing by most of the youths and citizens in the country who recently purchased a car after 2021. The specific term of Underwater is used for those borrowers who have to pay The amount to depend more than the value of their product such as car.
For example if a person is purchasing a car by using the loan from the bank and if unable to pay the loan, so the interest will automatically increase on the principle amount and after few years it will double or increase more than the actual value of the Asset. So American who were unable to maintain their car loans are included by the financial reports in the country. There are few mains reasons why citizens are facing this situation
- Purchase vehicle after COVID 19: During the research, economist from that most of the affected Americans are those who purchase their vehicle between 2021 and 2022 which was the post pandemic era. The economical stability was unbalanced in this year and price of vehicles were on peak due to not getting proper supply from the manufacturer. So American were Compelled to Purchase the vehicle with high price and had to apply for high loan amount.
- Long term loans: Suppliers of the vehicles are providing long term loan options to the citizens so anyone can easily purchase the car with a minimum balance and after that pay the rest of the amount to the bank with a long loan term. But these loan terms are caring a high interest rates and if any borrower fails to pay the EMI then the interest automatically increases and the cycle continues until you repay the complete amount.
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How to avoid being underwater situation?
So if you also trapped in this situation then it is important to repay the amount as soon as possible so after that you can easily use your vehicle accordingly. But in future you should follow the suggestions by experts for not being underwater situation next time. We are listing few of the tips which can be followed while applying for the loan
- Big Down Payment: Pay a large chunk of money upfront when you buy something. This means you borrow less and are less likely to owe more than it’s worth.
- Shorter Loan: Choose a loan that you pay back quickly. The longer you take to pay, the more likely the item’s value might drop below what you still owe.
- Fixed Payments: Make sure your loan payments stay the same. If they go up unexpectedly, you might struggle to keep up and end up owing more.
- Watch the Market: Keep an eye on how much similar items are selling for. If prices are dropping, be cautious about buying or borrowing too much.
- Don’t Borrow More: Avoid loans where your debt grows even when you make payments. Always ensure your payments cover at least the interest.
- Borrow Less: Try to borrow less than what the item is worth. This gives you a cushion in case its value goes down.
And most of the important tip you should follow, purchase only the required and needed vehicle. As if you are purchasing the vehicle for only fashion or following the trend but unable to pay the complete bill then it may become a trouble for you. However if you actually require a vehicle then can opt for a loan accordingly.
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