Underwater trade-ins are costing new car buyers almost $6,000
After a brief respite from soaring auto debt, Americans are once again falling deeply underwater on their car loans.
Used-car values have tumbled about 16% from the pandemic-driven peaks of early last year, according to the Manheim Used Vehicle Value Index, and negative equity — the amount that debt exceeds a vehicle’s value — has been climbing fast.
Among new car buyers, those carrying negative equity on their trade-ins were underwater by an average of $5,820 in September. That’s compared to a low of less than $4,100 in late 2021, according to automotive information firm Edmunds.
While it’s not unusual for motorists to accrue negative equity, the long-term trend has been exacerbated by low down payments and the emergence of six- and seven-year loan terms. Drivers got a measure of relief when a topsy-turvy auto market sent used-car values soaring during the pandemic, and some motorists discovered their vehicles were worth more than they had paid for them.
Historically, around half of new-vehicle buyers trade in a car, and just shy of a fifth of those trade-ins actually carry negative equity, Edmunds data show.
Even though only a sliver of US car buyers arrive at dealerships with trade-ins that are underwater, the rise is creating headaches for dealers and would-be car buyers alike — rolling negative equity into a new loan can be difficult if the amount owed is too high.
In the Columbus, Ohio, area, dealer Rick Ricart was accustomed to seeing only a couple of shoppers on any given weekend day with $10,000 or more in negative equity. On one Saturday in late August, though, he counted 10 customers facing that scenario.
Getting someone like that into a car “is not impossible,” Ricart said. “But is the customer comfortable with a payment that could go up hundreds of dollars due to interest rates, and the negative equity that has to be rolled into it?”
https://www.autoblog.com/2023/10/08/underwater-trade-ins-are-costing-new-car-buyers-almost-6000/ Underwater trade-ins are costing new car buyers almost $6,000