Car prices spiked over the past few years, reaching an average transaction price of $48,247 in November. That amount is a nearly 23% increase from the average cost just three years ago, according to Kelley Blue Book.

Several factors contributed to soaring car values, including labor shortage, supply chain constraints from the pandemic, a semiconductor shortage, and stimulus checks that fueled buying.

But the car market has begun to shift in the opposite direction now. Car values are cooling down, and the auto market is returning to normal.

And while that’s good news for Americans looking to buy a car this year, it’s potentially bad news for people who paid top dollar for some vehicles over the past few years. The latest data from Edmunds shows that borrowers who are underwater on their car loan — meaning they owe more money than the car is worth — have an average negative equity of $6,054.

That’s the highest amount of negative equity in the past three years, and it comes when borrowers are increasingly having difficulty affording their auto loans. Delinquency rates for subprime loans of 60 or more days past due were 6% in September and October.

All of this means that if you’re having difficulty making payments on your car loan right now, you’re not alone.

How to reduce your car expenses

Even if you’re not underwater on your auto loan, expensive car payments can eat into your personal finances. Here are a few steps you can take to improve your situation:

Look at your budget

If your car loan is too expensive, you may need to find some additional money to help cover the cost. That may mean cutting out other monthly expenses you don’t need. Streaming services, eating out, and shopping may be good places to consider cutting first.

Shop for cheaper car insurance

Insurance prices have surged over the past few years. While you can’t forgo coverage altogether, you may be able to find a different car insurance company that could offer you lower rates. Take some time to look at other rate quotes, adjust your deductible to see how it affects your premium, and talk to your insurer about different coverage options to see how it might impact your auto insurance costs.

Refinance your loan

While this option will likely involve some fees, it’s possible that refinancing your auto loan could end up saving you money. This might be a good option if your credit score has improved since you got the original loan.

If you have the money in your budget, you may benefit from paying off your auto loan early, especially if you’re underwater. Aim to make at least one additional payment per year, or more if possible. You can do this by increasing your monthly payment so the additional amount you pay equals one full payment by the end of the year.

One quick way to get your finances back on track

Sometimes, it’s worth cutting your losses. If you’re having a hard time paying for your monthly car payment and won’t be able to pay off the car for many more years, it may be best to sell it or trade it in and get something cheaper.

You may lose some money on the sale, but if you’re going to be financially stressed for many more years to come because of the high car payment, it may be worth selling the car as soon as possible.

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