September 29, 2020

Negative equity on trade-ins jumps to record, Edmunds says

Consumers are upside down on trade-ins like never before, Edmunds said. A record percentage of trade-ins last month were worth less than what was owed, the company said in a statement, and the gap was the widest it’s ever been.

The data shows that 44 percent of new-vehicle sales with a trade-in had negative equity in April, up from 33 percent in April 2019. The average amount owed on upside-down loans also hit a record high of $5,571 in April, compared with $5,036 a year earlier, according to the statement.

The recent drop in used-vehicle values has tipped the scale for many consumers, said Ivan Drury, Edmunds senior manager of insights.

“People who were at breakeven or slightly positive could now be staring at negative equity unknowingly,” he told Automotive News in an email.

Consumers who purchase a car now, though, could potentially save thousands of dollars over the life of their loan because of generous discounts from automakers and lower interest rates.

The average interest rate for loans involving trade-ins with a carried-over balance dropped to 4.7 percent in April from 7.3 percent a year earlier.