Falling used-vehicle prices are exacerbating the growing problem of negative equity on trade-ins, experts say. And it's not going to get better anytime soon.
Negative-equity rates are on the rise, driven in part by what was until recently strong growth in subprime loans and lengthening loan terms, according to Black Book analyst Anil Goyal.
Goyal said that while lenders are beginning to cut back on subprime financing, negative-equity rates will continue to rise as used-vehicle prices tumble. Customers who years ago had banked on their vehicle being worth a high amount at the end of their loan are instead entering an unfavorable market for sellers, he said.
"Customers are either having to come up with, say, an extra $2,000, or often the remaining value of the loan gets rolled over into another loan," Goyal said. "It's essentially increasing the price of the vehicle you're getting, which in turn increases the loan-to-value ratio even more. It sort of feeds on itself, and it's getting worse."