column Many Americans are car poor from their auto loans. Here's why.

Look at the outsiders. Among those with negative equity, 22 percent have $10,000 or more in debt, and 7.5 percent have more than $15,000 in debt.

If borrowers don't have the cash to pay off the old debt, all that negative equity turns into new debt. This means the next car also starts with negative equity, creating an expensive cycle of debt.

“It's not the end of the world for consumers to pay a price or two more than what their car is worth, but seeing such a significant portion of people affected at the $10,000 or even $15,000 level is nothing short of alarming,” said Jessica Caldwell, Edmunds' head of insights.

What contributes to this topsy-turvy problem?

In 2021 and 2022, a lack of inventory — due in part to pandemic-related shortages — drove prices (pun intended) so high that many Buyers were willing to pay more than the manufacturer's suggested retail price. Higher rates mean consumers aren't paying off their loan principal as much as in the past, Caldwell said.

This year, I replaced my beloved 2006 van with a hybrid SUV. But I refused to pay dealer markups that ranged from several thousand dollars to $10,000 above MSRP. If you overpay, you increase the risk of going underwater.

According to Caldwell, consumers are also opting for longer loans on their vehicles rather than being financially prudent.

Edmonds also found that monthly payments of $1,000 are still trending higher, coming in at over 17 percent. It has remained at that level since the second quarter of 2023.

“The danger is for people who stretch themselves into these high payments who can't afford them,” Caldwell says. “They may be in a situation where they have to get rid of their car because they can no longer make the payments, and in that case, a situation where their loan is worth more than their car. Especially early in the loan.”

Here's my suggestion, because I want to put the data in perspective.

There are things you want to run longer. like a holiday I like the two-week stretch because one week just isn't enough time to finish. If you're an investor, playing the long game helps your returns — that's how 401(k) millionaires are made.

But one thing where time is absolutely not on your side is the length of your auto loan.

A growing percentage of car buyers are choosing to extend their monthly car payments much longer than traditional four-year loans.

According to Edmonds, consumers are signing up for longer loan terms to ease the pain of higher prices. For the third quarter, 69 percent of new vehicle loans had a term of more than 60 months. Tenors of 84 months are on the rise, accounting for 18.1 percent of new vehicle loans.

“Longer loan terms can make monthly payments more palatable for consumers, but the harsh reality is that most Americans don't want to keep their cars for seven years,” said Evan Drury, Edmunds director of insights.

When life happens, a long auto loan can make things worse.

I was helping a couple whose husband had lost his job. They were unable to pay for the two vehicles and both vehicles were under water. They had no savings and were in no position to come up with several thousand dollars to pay off their debt if they sold the car.

So they either have to make monthly payments they can't afford or let the lender repossess the car. They chose the latter. And even though the car was later sold at auction, they were still on the hook for the balance of the loan and costs associated with repossession.

Edmunds.com has a car affordability calculator. Plug in the monthly amount you can comfortably afford and that will give you a range of car prices.

Currently, the average new car loan interest rate for a buyer with excellent credit is 5.25 percent, according to Experian. But if you have a bad credit score, that average jumps to 15.77 percent. For used car buyers, those averages range from 7.13 to 21.55 percent, depending on the borrower's credit history.

In the calculator, I entered $1,000 down payment and $500 over 48 months at a 5.25 percent interest rate with no trade-in. The result: buy a car between $18,000 and a little over $21,000.

Here's my bottom line: If you need a seven-year auto loan, you probably can't afford the car.