More Car Shoppers Than Ever Are Underwater on Their Trade-Ins, Reports

Analysis suggests that car shoppers with negative equity may want to consider leasing

Santa Monica, CA November 14, 2016 — A rising number of car shoppers have negative equity on their trade-ins when they’re purchasing their next vehicle, reports, the leading car information and shopping network. According to Edmunds data, an estimated 32% of all trade-ins toward the purchase of a new car through the first three quarters of 2016 were underwater.

This is the highest rate on record, and it’s up from 30% of all trade-ins toward new-car purchases from January to September last year. These “upside down” shoppers had an average of $4,832 of negative equity at the time of trade-in, also a record.

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

To give an idea of how much these short-term shoppers can potentially save by switching to leasing, Edmunds found that the difference between the average monthly payment on a new car purchase ($505) was $77 more than the average monthly lease payment ($428) in the third quarter. In general, new car leasing is at its highest level ever. Leasing made up an estimated 33% of new car transactions in 2016, through October.

The phenomenon of upside down trade-ins is not limited to new-car purchases. According to Edmunds’ Q3 Used Vehicle Market Report, a record 25% of all trade-ins toward a used-car purchase in the third quarter had negative equity. These shoppers had an average of $3,635 of negative equity at the time of trade-in, also a Q3 record in the used car market.

Edmunds generally recommends that all car shoppers wait until they have equity in a vehicle before they trade it in for another car. But, in cases where shoppers feel that their only choice is to trade in a car when they’re underwater, Edmunds lays out a few strategies to minimize—or even avoid—the financial blow in its consumer advice piece “Upside Down and Under Water on a Car Loan.”


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