As of June 2019 Fitch Ratings estimated 5.2% of securitized subprime auto loan balances being more than 60-days past due. The higher interest rates & longer loan terms make the vehicle buyer more likely to be underwater again when they purchase their next vehicle. Some borrowers will once again roll over these loans into new loans & will end up paying even more interest. * The total interest expense was estimated using the above loan schedules. The following stats from Edmunds were shared with the Wall Street Journal. Through the first 9 months of 2019 roughly 1 in 3 vehicle owners who traded in a vehicle when purchasing another had negative equity. The percent of trade ins with negative equity has increased almost every year since 2009, when the percent of negative equity trade ins was 19.5%. Nearly 1 in 3 trade ins were underwater, with the average underwater vehicle carrying $5,130 in negative equity. In 2017 buyers financed 86% of new car purchases with 43.5% buyers bringing a trade-in. This means they would have a negative equity of $4,290. If the above mentioned hypothetical $30,000 vehicle was purchased using an 8-year loan at 5% interest then the owner will still owe $26,871 after the first year of ownership.
To make up for increasing vehicle prices and stagnant wages, many people extend loan terms out from 3 or 4 years to as far as even 7 or 8 years.Ĭoupling a rapidly depreciating asset with a longer loan term means many shoppers owe more than their car is worth when they decide to buy another vehicle. This means that a vehicle which cost $30,000 would be worth $22,581 a year later. Cars typically depreciate a further 13% or so in their first year of operation. As soon as a car is driven off the lot it likely loses at least 10% of its value. Should You Roll Upside Down Payments Into a New Car Loan? Why So Many Cars Are Underwater If our site helped you save time or money, please get your accessories like cell phone chargers, mounts, radar detectors and other such goodies from through our affiliate link to help support our site. You can often save thousands of dollars by getting a quote from a trusted financial institution instead of going with the hard sell financing you will get at an auto dealership. Before you sign a loan agreement with a dealership you should contact a community credit union or bank and see how they compare. Source: Experian 2020 Q1 data, published on August 16, 2020Īcross the industry, on average automotive dealers make more money selling loans at inflated rates than they make from selling cars. Source: Experian 2022 Q2 data, published in August of 2022įor historical comparison, here is what the data looked like in Q1 of 2020 as the COVID-19 crisis spread across the United States. We publish an auto lender review guide to help buyers see current rates from top nationwide lenders.įor your convenience, here is data on what rates looked like across Q2 of 2022.
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