Introduction When purchasing a car on finance, many buyers focus primarily on the sticker price and monthly payments. However, the terms of the loan, especially its duration, play a crucial role in determining whether a buyer might face negative equity. The recent Consumer Financial Protection Bureau (CFPB) report provides valuable
What is Negative Equity when it comes to an Auto Loan?
Negative Equity also called “Upside down”, is a situation that occurs when a consumer owes more on his vehicle’s loan than the vehicle is worth.
Example:
2018 Honda Accord
Actual Cash Value = $18,500
Balance Owed on Loan = $21,000
Equity = – $2,500 (Negative)
The average negative equity on vehicle trades has been rising steadily for years, reaching a record high in April 2020 at $5,035. This is due in-part to very long finance terms (60 month, 72 months and 84 months).
Negative Equity Comparison 2019 V 2020
The table below shows the average negative equity amount as recorded by dealers at the time of trade-in.
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