Flickr img: by State Farm
Things in the new-car purchasing world are getting scary:
Quote:
According to a study conducted by Edmunds this year, a record 32 percent, or nearly one-third, of all vehicles offered for trade-ins at U.S. dealerships have negative equity.
[...]
To put that number into perspective, the lowest percentage of underwater trades was in 2009, the peak of the Great Recession, at 13.9 percent.
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Jalopnik: A Record 32 Percent Of Car Buyers Are Underwater On Their Trades: Report
This situation coincides with (1) increasing new vehicle prices, (2) increasing loan lengths, and arguably (3) decreasing financial literacy.
A recent spate of articles on this side of the border point out that the problem is hardly restricted to the U.S.
In Canada, loan lengths have also been going off the deep end too...
Quote:
Nearly three-quarters – 72 per cent – of new-vehicle loans taken out in Canada last year were for six years or longer
[...]
- From 2011 to 2016, seven-year vehicle loans, as a share of all new-vehicle loans issued, jumped to 44 per cent from 31.7 per cent.
- Eight-year loans? They rose to more than 10 per cent from 2.2 per cent.
- Conversely, the good ol’ five-year car loan dropped in share to 18.7 per cent from 29.9 per cent.
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Globe and Mail:
The rise of longer car loans, a major risk to household finances
Automakers have been pushing longer term loans
hard as a way to keep increasing record year-over-year sales. That keeps the buyers' monthly payments down, but the downside is obvious to anyone who thinks about it for more than 2 seconds (before the next shiny new thing distracts their attention).
The result is more and more people being deeper in debt when they can't resist the siren call of their next new car:
Quote:
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... the average amount of negative equity rolled over into a new car loan stood at $6,659 in 2016 according to Canadian data from J.D. Power. To clarify, that data only refers to those who are underwater at time of trade-in.
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The solution? The Globe's writer suggests people try living within their means, and not taking out massive loans on depreciating baubles. Pay cash for used cars. Or if you must borrow, buy a significantly less expensive vehicle and sock away the difference between what you're paying and what you would
otherwise be spending each month into your "next vehicle fund".
What a quaint idea. Likely to be heeded? Not if you look at where the stats are going.