Americans are once again heavily underwater on their auto loans after a brief respite from skyrocketing auto debt.
According to the Manheim Used Vehicle Value Index, used-car values have fallen by around 16% from their early-year heights caused by the epidemic, and negative equity, or the amount that debt exceeds a vehicle’s value, has been rapidly increasing.
In September, customers purchasing new cars who had negative equity on their trade-ins were underwater by an average of $5,820. According to car information company Edmunds, that’s in contrast to a low of less than $4,100 in late 2021.
The accumulation of negative equity by drivers is not unprecedented, but the long-term tendency has been made worse by low down payments and the emergence of six- and seven-year loan durations. As used car values soared during the epidemic, several drivers found their automobiles were really worth more than they had purchased for them. This provided some solace for drivers.
Even though only a small percentage of US auto purchasers bring underwater trade-ins to the dealership, the surge is causing problems for both dealers and prospective buyers because it’s challenging to roll negative equity into a new loan if the amount due is too high.