The tsunami of pre-owned vehicles flooding dealer lots is great news for those seeking an affordable, low-wear used car, but the previous owners are taking a hit.
More than ever before, owners returning their vehicle for a trade-in are discovering their old car’s value sank faster than their ability to pay it off. New car buyers, take warning.
A Detroit Free Press report, citing research from Edmunds, claims the number of owners now “underwater” has reached a record high. As of the second quarter of this year, 32 percent of vehicles returned for trade-in are worth less than the remaining balance of the owner’s loan.
The difference is then tacked on to the shiny, alluring new car that owner had his or her eye on. Blame higher transaction prices and long-term loans with tiny monthly payments. Blame the rise in popularity of leasing, too.
According toÂ Experian Automotive, the average car loan covers a term of 68 months,Â rising to an average of 72 months for subprime borrowers. Rising transaction prices has boosted an average loan by 4.8 percent in the past year, hitting $29,880 at the end of June. However, retained value isn’t keeping up with soaring sticker prices.
The percentage of consumers being soaked on trade-ins tops the previous high of 29.2 percent in 2006, and small cars seem to be the worst offenders. Reduced consumer demand for these vehicles, coupled with rising pre-owned inventories spawned (in part) by a growing crop of leasees, has sent used car values south. Dealers aren’t paying as much for them at auction.
“Itâ€™s problematic for the consumer because thereâ€™s no foolproof way to eliminate hisÂ financial exposure,” Greg McBride, chief analyst at Bankrate.com, told the Detroit Free Press. “If the car gets stolen,Â is totaled or you get new car envy while youâ€™re upside down then itâ€™s a big problem.”
[Image: Ford Motor Company]
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November 28, 2016 at 01:39AM