Americans Face Auto Loan Predicament as Vehicle Values Decline
Via Autoblog
Summary
Millions of American car owners found themselves owing more on their auto loans than their vehicles were worth in early 2023 as used car values fell sharply from the pandemic-era highs reached during the supply shortage. Average negative equity on vehicle trade-ins reached $5,341 in the fourth quarter of 2022, a 29% year-over-year increase, while the proportion of vehicle sales involving a negative-equity trade-in jumped 17% over the same period.
The problem was compounded by rising interest rates, with average used car loan rates climbing past 10% as the Federal Reserve pursued aggressive rate hikes to control inflation, increasing the carrying cost of existing loans even as vehicle values dropped. Analysts warned the trend showed no sign of reversing, with more rate increases expected and prices continuing to fall from their record highs, trapping a growing cohort of borrowers with limited options.
