It’s no secret that used car prices have been unprecedentedly high following the impact the COVID-19 pandemic had on the global economy. As inventory levels dwindled and demand skyrocketed, many consumers were forced to finance vehicles at values significantly higher than those before the pandemic. Now, with vehicle prices beginning to stabilize, those same consumers are finding themselves in an increasingly disadvantageous equity position.
According to a report from TransUnion, more consumers are finding themselves in a negative equity financial situation. In fact, calculations show that the average U.S. used car buyer is agreeing to loans worth 125 percent the value of the vehicle’s actual market price.
“To a large extent, used vehicle values were elevated as a result of the scarcity brought on by pandemic-related supply chain and inventory issues,” TransUnion Senior Vice President Satyan Merchant was quoted as saying. “As those issues have abated, and inventories have begun to return to more of a normal state, the value of those used vehicles has begun to decline.”
It’s worth noting that this new development comes as the average used vehicle transaction price during Q1 2023 dropped 6.4 percent from the same timeframe last year, thus falling to $28,381 as compared to $30,329 during Q1 2022. That being said, vehicle prices remain at historically high levels, as Q1 2023 figures are still up 44 percent as compared to Q1 2018 numbers.
In fact, prices are still so high that only 30.6 percent of used cars sold during Q1 2023 were priced under $20,000. This is a significant drop from the 60.5 percent figure recorded five years ago.
“As vehicle prices have risen and overall inflation remains elevated, consumers are increasingly starting in higher than average LTV positions to afford used vehicles,” Merchant added. “It’s more important than ever for consumers to effectively manage their payments to fit within their budgets while also allowing for a cushion for other ongoing expenses like insurance and repairs.”
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Comments
It’s ok to laugh
You screen name says it all.
Moron.
There really isn’t anything to laugh about.
People have to have cars, the prices on used cars are way up there, and the interest rates are high as well.
There are lots of other options. You don’t need the newest version with all the bells and whistles just to get around. Buy used and save.
Isn’t this the same type of banking that caused the real estate bubble ten years ago? Will there be an up-tick in repos?
There already is.
The stupid consumer needs to be held accountable for this as well.
What goes up must come down !!!! Unfortunately people going to realize and learn about negative equity!!!
The same thing happens with most new cars. As soon as you drive off the lot, the new car becomes a used car worth much less than you paid for it and usually much less than you still owe on it. It’s been that way forever.
Wait till they are either totalled or maybe traded in. The gaps and kisses will be huge.
Totally agree with u Harvey kinda waiting to purchase new gmc Denali but waiting to see what possible future outcome for 2024 !!
How are banks allowing this in the first place? Years ago you had to put down 20% of the NADA guide value. If you had a used car with a NADA value of $10000 there’s no way they would loan you $12000 under any circumstances. What has changed????? Please, would someone clue me in? Is it the greed of the banks taking those type of risks?
Banks need equity on hand . Loans how that is done , also keeps their minimum cash on hand rising .
You reap what you sow . So many people bought used car they couldn’t afford . Now the value of their truck is not what they paid for. flippers are starting feel it as well
When will people learn that in most cases, the price you pay for the vehicle is not what the vehicle is worth? Everyone who continues to pay dealer markups on popular models will find this out when they go to trade or sell their car and they are upside down. Just because you paid $15,000 more for that new Cadillac doesn’t mean that your Cadillac is worth $15,000 more…you just purchased $15,000 in negative equity.
Gap insurance.
Pay cash and no premium.
My dealer keeps calling to buy back my 2019 Nox Premier.
People are crying about the high interest rates. Guess they are too young to remember the 1980s? Mortgage rates were 12-14%. Car loans were around 10% or more. You just have to adjust your purchase price to match what you can afford. Simple economics. Buy what you can afford. Not what you want. Same for your home. That’s why they call them “Starter Homes”. Don’t be jealous of what others have. Live within your means.
Fix the old one if at all possible. Another car is a “want” not a “need” in most cases. Buy what you can afford. Save for it. Of course this will fall on deaf ears of a spoiled generation.
We’re seeing 2008 all over again.
My 2015 GMC is in getting new brake rotors as I type this, I will be keeping it until it blows up. One day it will just be duct tape and tires but I have not had a payment for 5 years and I would like to keep it that way. I laughed out loud when the dealership finance guy said I could afford something more expensive and just pay for gap insurance.
I have worked and saved and gotten my credit up to be able to buy any new car I wanted. Then Covid hit and I still cannot afford a new car or rather I will not afford a new car ! The prices are insane. When the price of a new truck is more than I paid for my home , I have to ask myself is it worth the cost ! The answer is a resounding NO !!!!
That’s the smart move.