As more consumers trade-in their old vehicles for a newer model, a growing number of consumers are owing more on their trade-in than their vehicle's actual worth.
Automotive News reports a gradual rise in negative equity among trade-ins beginning in Q3 2011 according to information from the Power Information Network. At that time, 22 percent of trade-ins were upside down; however, by Q1 2014, the percentage reached 27.3 percent after hitting 25.9 percent and 23.6 percent in the first quarters of 2013 and 2012, respectively.
The cause? Longer loan terms of 73 to 84 months (and now, beyond), increased subprime borrowing, and declining values in the used-car market as negative equity takes hold.
Regarding the aforementioned loan terms, Experian Automotive said the loans were the fastest growing category in Q4 2013 compared to the previous year, taking 20.1 percent of the new-car market and 23 percent of used-car retail volume in comparison to 19 percent and 12.5 percent respectively in Q4 2012. However, PIN senior director Thomas King explained that while 73+-month loans should be watched carefully, the only consumers who suffer from being upside down are those who roll the negative equity in their trade-ins into the next vehicle repeatedly.
from The Truth About Cars http://ift.tt/Jh8LjA
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