Underwater Car Loans Are Rising

Written by Swiss America

money 1248598 640More Borrowers Are Going Underwater on Car Loans -Wall Street Journal
"John Schricker took out a loan to buy a car in 2017. Then he took out another. And then another...He recently bought a $27,000 Jeep Cherokee with a $45,000 loan from Ally Financial Inc. Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis: by piling on debt to such a degree that it often exceeds the car's value. This phenomenon - referred to as negative equity, or being underwater - can leave car owners trapped.

Some 33% of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity....The transactions are often encouraged by dealerships, which now make more money on arranging financing than on selling cars....Lenders are typically willing to make the underwater loans, though they often charge high interest rates. Many of the loans are bundled into bonds and snapped up by Wall Street investors."