Why Underwater Car Shoppers Facing Record Negative Equity at Trade-In

If you have ever gone to trade in your car with a dealer, chances are high that you never felt like you were going to get a great deal. It turns out that car shoppers are facing record levels of negative equity on their trade-ins.

Edmunds knows a thing or two (million) about the new and used car markets. They are now reporting that about 32% of all trade-ins toward buying a new car were underwater through the first three quarters of 2016. Edmunds also shows by just how much this is the highest rate on record — it is up from the 30% reported from January to September last year.

Where the big hurt comes is that there was an average of $4,832 of negative equity at the time of trade-in. That is another record.

While Edmunds did not come up with this figure, there is something to consider here. If a car buyer takes out a new 48-month loan on the next car, then being upside down by $4,832 would imply that over $100 per month is being tagged on top of the next car payment just to make up for that shortfall.

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Edmunds even went on to show how much car shoppers could potentially save by leasing a car rather than buying a car. Their data show that the average monthly payment on a new car purchase was $505 — some $78 higher than the average $428 monthly lease payment. That data was from the third quarter of 2016 Edmunds further pointed out that new car leasing is at a new record of 33% of new car transactions through October of 2016.

Being upside-down in used cars was also at a record 25% of all trade-ins having negative equity as well. That rate was a record $3,635 per used car at the time of a trade-in.

Edmunds is now suggesting that perhaps car buyers might want to consider leasing. Ivan Drury, a senior analyst of Edmunds, said:

It’s curious to see just how many of today’s car shoppers are undeterred by how much they owe on their trade-ins. 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. In fact, 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.