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F & I Solutions

Negative Equity

Short-Term Elation, Long-Term Consternation

Hedonism with 22-in. wheels and a 10-speed transmission, funded by a120-month installment sale agreement with $6,500 in negative equity.

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We’re actively engaged in the business of selling new or newer cars and light trucks to eager buyers open to creative ways to pay for them. If we want to stay in business, that’s what we do.  

In this era of computer-designed and robot-assembled vehicles, Americans are keeping their cars longer. R.L. Polk says new vehicle owners keep their cars for around six years. The average age of the modern vehicle fleet is 11.4 years.  

Extended-term financing has kept monthly payments manageable. Credit Karma data for the first quarter of 2019 recorded an average new vehicle monthly payment of $554, with $391 monthly for used vehicles. The average repayment term for new vehicles was 69 months. The average monthly lease payment was $457. 


At the onset of 2020, optimism is running high in the best-of-all-possible-worlds Trump economy at a time when selections of new or pre-owned vehicles appear to be the most alluring. As a result, the number of dealer-arranged finance transactions with negative equity is increasing, as is their dollar amount. In some instances, a portion of the negative equity on an earlier transaction finds its way into the latest installment sale agreement. 

The ready remedy is longer-term car financing, up to 120 months — just 60 months shy of a 15-year home mortgage. Now, the vehicle owner is in the untenable position of effectively being out of the new or pre-owned car market for a minimum of 96 to 108 months. Needless to say, the owner of a car financed for 10 years needs to have the oil changed at regular intervals because he is stuck with that vehicle for a very long time.


For those of us who sell cars for a living, we’ve taken this prospective buyer out of at least one trade cycle. And that’s likely the good news. When the regulators figure this out, they’ll probably set limits on how much negative equity can be rolled forward into new deals. Unfortunately, the consumer advocates will somehow hold us accountable for finance charges on par with the selling price of the car.

Granted, caveat emptor prevails. That said, we need to be doubly certain that we’ve clearly identified and properly recited the mandated TILA-box disclosures on big dollar negative equity transactions.

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