Negative Equity Hits All-Time High in April


Pre-Owned Vehicles
Photo Credit: Mtsaride/Shutterstock
A record number of consumers are upside down on their car loans, according to new research released by Edmunds. In a press release, Edmunds says its data shows that in April an all-time record share of 44% of new vehicle sales with a trade-in had negative equity, compared to 40% in March and 33% in April of 2019. The average amount owed on upside-down loans also climbed to an all-time record high of $5,571 in April, compared to $5,405 in March and $5,036 in April of 2019.

"At first glance, the numbers are certainly alarming, but there are some potential upsides for shoppers with negative equity who purchased a vehicle in April compared to those who did so just a year ago," said Ivan Drury, Edmunds' senior manager of insights. "Automakers are offering some of the most generous incentives we've seen in decades to generate demand during the pandemic, and consumers stuck in high-interest loans might be able to make these work to their advantage."

Edmunds data shows that the average interest rate for loans involving a trade-in with a carried-over balance was 7.3% in April 2019, and in April 2020, that number dropped to 4.7%. Edmunds experts say this means that consumers who purchase a car right now could potentially save thousands of dollars over the life of their loan compared to those who did a year ago, even if they are underwater on their car loan. On a $35,000 loan, the change in finance rates adds up to more than $3,000 in savings.

I would note that these numbers reflect a dramatic tanking of the used car market in April due to the Coronavirus. Auctions were shut down, there were record high new vehicle incentives, and the majority of business shifted from certified to new.

The used market has evened out at this point, auctions have had to adapt to online-only. As I said on the air last Saturday, last week’s auction prices were back to pre-pandemic prices.
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