More consumers than ever before — 32% in the first three quarters of 2016 — are turning in cars with negative equity, in order to get their next new vehicle, according to data from Edmunds.com.
These ”underwater” or “upside down” borrowers represented 30% of all trade-ins during the same period last year and the average negative equity on the vehicles also rose to a record high average of $4,832.
The lowest underwater percentage rate on record was 13.9% during the great recession when credit was tight, according to USA Today. Yet, this year tops the 29.2% negative equity trade in rate high of 2006, in the lead up to the recession.
Used-car trade ins are not immune to this trend either: consumers trading in vehicles with negative equity for used purchases hit a high average of 25%, and on average had $3,635 left in negative equity — yet another record breaking figure.
Leasing might be the answer for these consumers, said Edmunds.com Sr. Analyst Ivan Drury. If the trend is towards consumers wanting newer, more expensive cars, at a low monthly cost, then leasing is on average $77 cheaper per month than the average loan payment, Edmonds data found.
“Shoppers with this mindset may want to consider jumping on the leasing bandwagon. They can get into a new car with great technology every few years without having to worry about how much they still owe on their trade-in,” Drury said in a press release. “With today’s strong economic conditions at their back, these shoppers are willing to absorb a significant financial hit to get into a newer vehicle.”
