Many Car Owners Owe More than Car is Worth

A growing number of new car buyers are finding they owe more on their existing car loans than the vehicles are worth as trade-ins.

The phenomenon, known as being “upside down” on a loan, is the result of a confluence of changes in the ways Americans buy and finance their vehicles.

To begin with, the prices of new cars and trucks have been held down as manufacturers offer incentives and rebates to lure purchasers. As new car prices flatten, so do resale values. Buyers, meanwhile, are choosing increasingly longer-term loans, sometimes extended over 84 months, to reduce monthly payments.

The result is that a consumer who trades in a car that isn’t fully paid for can end up wrapping the loan hangover into the financing for a new car, greatly increasing the cost. Or, if a car is destroyed in an accident before it’s paid off, the insurance settlement may not fully cover the outstanding loan.

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