More And More Americans Are Underwater On Their Car Loan

2015 Toyota Camry (Credit: Toyota)

Remember what happened with the home market several years ago? The bubble pop created a swell of negative equity, sending everything into turmoil for years. According to a recent report from Bloomberg, something similar is brewing in the auto industry, and it doesn’t sound pretty.

JD Power says that about one out of every three vehicles that were traded into dealerships in 2015 had at least some negative equity. Basically, the problem is that people in general aren’t making more, but they’ve been able to buy nicer vehicles.

That might not make sense, but if you’ve looked at a car lately, you might have noticed that dealers are pushing 72-month loans and even longer terms. By stretching out the life of a car loan, the monthly payments shrink. The catch is that versus a shorter loan, you’re more likely to get underwater.

Instead of just biting the bullet and going for a vehicle with ventilated front seats, Americans overall are opting to “have it all” by choosing longer loans. You could blame this issue on the banks as well, because they’re the ones who’re allowing it to happen.

The worst offenders for negative equity, according to the report, are mass-market sedans, or the Accords, Camrys, Altimas, etc. People want SUVs these days since gas is temporarily cheap and we all have short memories.