SANTA MONICA, Calif. – March 28, 2005 People getting tax refunds this year are averaging amounts of $2,294, according to the IRS*. Edmunds.com, the premier online resource for automotive information, suggests that consumers could wisely use this “found” money to pay down their car loans.
In February 2005, 26.2 percent of consumers who traded in their existing vehicles for a new car still owed more money on their trade in than it was worth, a situation known as negative equity or being “upside down” on their car loans. The average amount of negative equity in these vehicles in February 2005 was $3,646.
“It would be an excellent idea for consumers in an ‘upside down’ situation to apply their tax refund to their car loan to pay off their negative equity,” said Philip Reed, Edmunds.com Senior Consumer Advice Editor and co-author of “Strategies for Smart Car Buyers.” “This strategy holds true whether the person keeps the car or immediately trades it in for the latest car of their dreams. People who roll negative equity into subsequent car loans put themselves into an unwise, expensive economic situation â€” they will be paying off cars they no longer own while also paying down the loan of their current cars.”
A recent Edmunds.com poll of 1,486 consumers found that 26 percent of car buyers consider trading in a car with negative equity to be “just part of the car-buying process.” In a newly published article on negative equity ), Reed reports that some consumers have turned to using cash rebates as a way to neutralize their negative equity situations. However, that may not be as much of an option in the future as it is now. Edmunds.com analysts have already seen Chrysler and GM, among others, starting to lower cash incentives on some of their new vehicles.
About Edmunds.com, Inc.
Edmunds.com is the premier online resource for automotive information. Its comprehensive set of data, tools and services, including Edmunds.com True Market ValueÂ® pricing, is generated by Edmunds.com Information Solutions and is licensed to third parties. For example, the company supplies content for the auto sections of NYTimes.com, AOL, About.com, iVillage.com and IGN.com, provides weekly data to Automotive News and delivers monthly data reports to Wall Street analysts. Edmunds.com also publishes a high-speed, on-screen car magazine called Inside Line available free at www.insideline.com. Edmunds.com was named “best car research” site by Forbes ASAP, has been selected by consumers as the “most useful Web site” according to every J.D. Power and Associates New Autoshopper.com StudySM and was ranked first in the Survey of Car-Shopping Web Sites as reported by The Wall Street Journal. The company is headquartered in Santa Monica, Calif. and maintains a satellite office outside Detroit.
*IRS data as of 3/11/05