Nearly a third of all U.S. consumers trading in a vehicle during the first quarter were underwater — owed more than the car is worth — on their trades, the highest level in five years.
According to data from Edmunds.com, 30.9 percent of the cars, crossovers, and pickups traded in on a new vehicle in Q1 carried negative equity and the number is growing. With new vehicle prices rising and interest rates still higher than consumers are used to, buyers are shopping a monthly payment rather than the price of a new vehicle. The average amount owed on a trade in Q1 was $7,183, which is the second-highest number on record. It’s also 42% more than the same period five years ago, Edmunds noted. Rolling over that kind of money adds nearly $150 to a monthly payment so those underwater buyers’ average monthly payment is now $932. In an attempt to manage their negative equity, buyers with good enough credit are expanding their loan terms to push the monthly payment down. Edmunds notes that during the first quarter that more than nine out of 10 buyers with negative equity trades had loans of at least 72 months or longer. Just under half of those — 43 percent — stretched that out to 84 months.
“The average term on these loans with rollover debt was 77.4 months, compared with 70.3 months for all new-vehicle loans,” the company noted. “At the same time, the average APR for these underwater …
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Author: Michael Strong
