SANTA MONICA, Calif. — A record number of consumers are upside down on their car loans, according to new research released by the car shopping experts at Edmunds. Edmunds data shows that in April an all-time record share of 44% of new vehicle sales with a trade-in had negative equity, compared to 40% in March and 33% in April of 2019. The average amount owed on upside-down loans also climbed to an all-time record high of $5,571 in April, compared to $5,405 in March and $5,036 in April of 2019. 

If you play your cards right, this could be an opportunity to essentially reset your loan and acquire a new vehicle for a similar or smaller monthly payment.

“At first glance, the numbers are certainly alarming, but there are some potential upsides for shoppers with negative equity who purchased a vehicle in April compared to those who did so just a year ago,” said Ivan Drury, Edmunds’ senior manager of insights. “Automakers are offering some of the most generous incentives we’ve seen in decades to generate demand during the pandemic, and consumers stuck in high-interest loans might be able to make these work to their advantage.” 

Edmunds data shows that the average interest rate for loans involving a trade-in with a carried-over balance was 7.3% in April 2019, and in April 2020, that number dropped to 4.7%. Edmunds experts say this means that consumers who purchase a car right now could potentially save thousands of dollars over the life of their loan compared to those who did a year ago, even if they are underwater on their car loan. On a $35,000 loan, the change in finance rates adds up to more than $3,000 in savings. 

To help guide shoppers who are upside down or stuck in a high-interest car loan, Edmunds experts offer their tips on how to take advantage of the current market to better their situation: 

  • Determine exactly how much you owe on your current vehicle. Check your monthly statement or log in to your finance company's website to see how much of your loan you have left to pay. Next, figure out how much your car is worth right now by using Edmunds’ online appraisal tool, or by contacting dealers to get trade-in quotes. (There are dealerships willing to offer a quote remotely right now, but you’ll likely have to write up a thorough account of the vehicle's condition and include photos.) Subtract what you still owe from the trade-in value of your vehicle. If you have negative equity, this amount is what you'll be rolling into the new loan.
  • Be willing to consider different options if you want to come out ahead. Start by deciding what vehicle you'd like to trade into, whether that's a newer version of your current car or something else entirely. If you're willing to downsize or downgrade from a larger or more expensive vehicle, you're more likely to come out ahead. Since today's affordable vehicles offer a lot of features once reserved for luxury vehicles, you might be giving up less than you think.
  • Do the math to determine what you can afford. Use a loan calculator to get an estimate of what your interest rate is likely to be, and do the math from there by inserting the price of the new car you've chosen with the total you owe on your old car added in. This calculation will give you an idea of your new payments, but it won't help you find out if you qualify for promotional interest rates.
  • If your credit is good or recently repaired, check to see if you qualify for a promotional interest rate. There are exceptionally low interest rates available right now, including zero-interest loans available for qualified customers. Contact dealerships in your area to find out what they can offer you. You'll need the dealer to provide you with your final out-the-door cost and your interest rate. In order to get an exact monthly payment, provide the dealer staff with the details of your trade-in.

“Traditionally, we would advise consumers against trading in their vehicle if they’re upside down on their car loan, but the market is in such a unique place right now,” said Drury. “If you play your cards right, this could be an opportunity to essentially reset your loan and acquire a new vehicle for a similar or smaller monthly payment.”

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