More Trade-Ins Pulled Underwater As Negative Equity Level Rises

Cameron Aubernon
by Cameron Aubernon

As more consumers trade-in their old vehicles for a newer model, a growing number of consumers are owing more on their trade-in than their vehicle’s actual worth.

Automotive News reports a gradual rise in negative equity among trade-ins beginning in Q3 2011 according to information from the Power Information Network. At that time, 22 percent of trade-ins were upside down; however, by Q1 2014, the percentage reached 27.3 percent after hitting 25.9 percent and 23.6 percent in the first quarters of 2013 and 2012, respectively.

The cause? Longer loan terms of 73 to 84 months ( and now, beyond), increased subprime borrowing, and declining values in the used-car market as negative equity takes hold.

Regarding the aforementioned loan terms, Experian Automotive said the loans were the fastest growing category in Q4 2013 compared to the previous year, taking 20.1 percent of the new-car market and 23 percent of used-car retail volume in comparison to 19 percent and 12.5 percent respectively in Q4 2012. However, PIN senior director Thomas King explained that while 73+-month loans should be watched carefully, the only consumers who suffer from being upside down are those who roll the negative equity in their trade-ins into the next vehicle repeatedly.

Cameron Aubernon
Cameron Aubernon

Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.

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  • Thunderjet Thunderjet on Apr 10, 2014

    In January of 2011 I bought a brand new Focus SE (2011 model) with 0% for 60 months. I put $2k down and after taxes the total came to $250 a month for the life of the loan. I traded in a paid off car for the Focus and I plan to keep the thing for 5-10 years after the loan is up. Heck in three years I just cracked 30K miles. The problem is most people don't do this. The instant a car needs tires, brakes, or some other non warranty repair they dump it for a new car. Fixing the issue is cheaper in the long run than buying a new car. The problem is most people don't look at it that way. My soon to be brother in law has had three new cars in the time I've had my Focus. None of them have been paid off. I hate to see what his car payments look like.....

  • Johnny ringo Johnny ringo on Apr 10, 2014

    I never finance a car for a longer time period than three years, I always finance through the credit union I belong to and drive the vehicle for as long as I can -usually between six and eight years. So far this has worked quite well for me.

  • CapVandal CapVandal on Apr 11, 2014

    The economy of the United States is the world's largest single national economy. The United States' nominal GDP was estimated to be $17.4 trillion in January 2014,[1] approximately a quarter of nominal global GDP.[2] Its GDP at purchasing power parity is also the largest of any single country in the world, approximately a fifth of the global total.[2] The United States has a mixed economy[22][23] and has maintained a stable overall GDP growth rate, a moderate unemployment rate, and high levels of research and capital investment. Its five largest trading partners are Canada, China, Mexico, Japan, and Germany. The US has abundant natural resources, a well-developed infrastructure, and high productivity.[24] It has the world's seventh-highest per capita GDP (PPP).[2] The U.S. is the world's third-largest producer of oil and largest producer of natural gas. It is the second-largest trading nation in the world behind China.[25] It has been the world's largest national economy (not including colonial empires) since at least the 1890s.[26] As of 2010, the country remains the world's largest manufacturer, representing a fifth of the global manufacturing output.[27] Of the world's 500 largest companies, 132 are headquartered in the US, twice that of any other country.[28] The country has one of the world's largest and most influential financial markets. The New York Stock Exchange is by far the world's largest stock exchange by market capitalization.[29] Foreign investments made in the US total almost $2.4 trillion,[30] while American investments in foreign countries total over $3.3 trillion. Most countries WISH they had the problems the US has. And yes, it is from Wikipedia, so any of the facts could be wrong, but not most of them. A long thread about people that are upside down on their cars ... I suppose it biases the discussion toward focusing in the negative. As far as loan defaults -- loans made after 2008 have had extremely low default rates.

  • Rpn453 Rpn453 on Apr 17, 2014

    My buddy just got a 25-year loan for a 2014 Dodge Ram Sport. It sounds strange, but when your bank offers such a thing at a lower rate than your mortgage, how can you say no?

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