Uh Oh, Your Car's Worth Less Than You Owe - What Comes Next?

Years back, after the desire to purchase one particularly fetching model became too great, you walked into the dealership, marched right over to the salesman’s cubbyhole, and signed over several years’ worth of payments on your ride du jour. Bliss ensued.

Unfortunately, come trade-in time, your once-desirable ride isn’t even worth the amount left owing. You’re in negative equity, pardner. Still, buyers faced with this situation have a number of options at their disposal.

Thanks to a recent study of new car buyers, we now know exactly how owners of low-value trade-ins chose to deal with their unexpected debt.

Not surprisingly, the largest subset of buyers with negative equity simply roll it over into their next vehicle. Life goes on, with payments a little higher than anticipated. However, Automotive News‘ study, conducted by DealerRater in May, found that negative equity alters plans in different ways depending on segment and desired brand.

Of the 88,874 respondents (individuals visiting a dealer for servicing or to purchase) 46,700 had purchased a new vehicle and traded in their previous car or truck. Among the trade-in group, 37 percent had negative equity. That’s close to the 33 percent discovered in the first quarter of 2017 by Edmunds.

How did the DealerRater buyers handle their negative equity? 54 percent choose to roll it over into their new vehicle’s payments, while 19 percent decided to jack up their down payment. Of the respondents, 21 percent chose an alternate course of action, and only 6 percent of buyers or lessees ended up selecting a different vehicle to offset the amount still owing.

The story proved ever so slightly different for luxury buyers. Of the premium crowd, 30 percent had negative equity when it came time to trade in that vehicle for a new one. 49 percent of those buyers rolled over the debt, 20 percent hiked their down payment, while 25 percent chose to do something else. As with the overall tally of respondents, just 6 percent decided to buy or lease a different car.

What brands were most associated with negative equity at trade-in time? Not surprisingly, value-conscious brands led the pack, with Nissan buyers out in front at 47 percent. Kia buyers were a close second, at 46 percent, followed by Hyundai and Fiat Chrysler Automobiles brands at 42 percent. Subaru buyers had the lowest rate of negative equity – 27 percent – while 33 percent of Honda and GMC-Buick buyers were saddled with a problem trade-in. Ford and Toyota buyers also fell below the average.

When faced with negative equity, Volkswagen and GMC-Buick buyers and lessees proved most likely to roll over the debt into their new payments – 62 percent chose the option. Subaru buyers, however, were most likely to hike their down payment, with 26 percent going that route. Volkswagen shoppers, at 13 percent, were the least likely to increase a down payment.

While choosing a different vehicle was the least common response to negative equity, a range does exist. At the bottom, with 4 percent, sits Subaru. Toyota shoppers, perhaps the most fiscally conservative of the group, showed the highest likelihood of choosing something else – 8 percent. That number could have a couple of factors behind it. Either Toyota shoppers are more likely to play it safe and temper their hopes, or the brand’s dealer staff are more forthright with customers.

[Image: VadimGuzhva/ Bigstock.com]