![]() ![]() Used cars and trucks prices were down 4.2% year-over-year through May new vehicle prices were up 4.7%, according to the Bureau of Labor Statistics. Rising loan to values are important to consider, according to Merchant, because they can be used to predict higher delinquencies among used auto finance customers, particularly with subprime customers.Īs vehicle values have declined in recent quarters, TransUnion noted, used car loan-to-value ratios at origination have trended upward. In this case, you'd owe 25% more than the used car is worth. In the first quarter of 2023, the average loan to value ratio on a used car bought then was 125% - up from 112% three years earlier. The higher the number, the more vulnerable the consumer. The auto industry pays close attention to loan to values ratios - the difference between the loan amount and the market value of the car. Or try to sell that car on your own to get a better price. You might have to take on an even bigger car loan and an even bigger monthly payment to get another set of wheels. The real problems pop up when someone needs to buy a new car - and doesn't have $3,000 or $5,000 sitting on the sidelines to cover what they still owe on the old car that they'd like to trade in. Not surprisingly, the researchers noted, consumers with more equity in their car or truck appear more likely to protect that equity by making payments. Negative equity - or owing more on your car than it's worth - is building, particularly in used cars bought by subprime borrowers, according to a new study called "Finding Opportunity in Uncertain Times" by TransUnion and J.D. In some cases, used car prices are going down more than they have in the recent past. The new and used auto market is moving farther away from the days of shockingly low supplies on car lots that contributed to skyrocketing prices. "They often go and purchase a vehicle because they really need it," Satyan Merchant, senior vice president of the auto business at TransUnion, told the Free Press. The outlook is most worrisome for borrowers with subprime credit scores who bought used cars as prices and interest rates hit a peak. And lenders are growing more concerned about people falling behind in their car payments, especially if that car drops significantly in value. The car you're looking to trade in - particularly if you bought a used car - could be worth far less than you'd imagine. ![]() Drivers who took on auto loans at high interest rates and paid sky-high prices for cars could face some headaches down the road as car values pull back in an economic slowdown.
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