Negative Equity Rolled Into New Car Purchases Reaches Record High

Just two weeks ago we noted that a record 25% of vehicles being traded in for used car purchases had negative equity of $3,635. Now, according to the latest report from Edmunds, the new car market isn't any better off with 32% of trade-ins having an average negative equity balance of $4,832. Of course, that's no problem when you can simply roll that negative equity into a brand new 7-year loan at a 2% interest rate. Sure, with the average car priced at $33,000, that means your starting principal balance is 115% of your new car's value but that's no big deal, right? That just means you'll have to roll over even more negative equity in 4 years when you buy your next brand new vehicle.

Through the first three quarters of this year, an estimated 32% of all trade-ins being rolled into a new-vehicle purchase were under water — the highest rate on record, according to Edmunds.com. The amount of negative equity car buyers are rolling has also reached a record high. On average, according to the firm, consumers trading in their vehicles for new cars are rolling $4,832 in negative equity.

"It's curious to see just how many of today's car shoppers are undeterred by how much they owe on their trade-ins,"said Edmunds.com Sr. Analyst Ivan Drury. "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.

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