In the first quarter of 2014, 27 percent of new-vehicle buyers who traded in an old model owed more on the trade-in than it was worth, according to the Power Information Network (PIN), a unit of J.D. Power and Associates. That is up from 21 percent in 2009. The average amount of "negative equity" was $3,803, up slightly from 2009.
The improving economy is drawing more buyers with marginal credit back into the market, says Thomas King, senior director of the PIN. "During the recession, those who were most impacted were people at the lower end of the income scale. Those who left the vehicle market tended to be younger, have lower credit scores and less financial stability," he explains. "Those are the same people who use longer loans. As those people start to re-enter the market, we're seeing more buyers with negative equity."
The average amount financed has grown 13 percent to $29,439 since 2009, and the average loan term has crept up to 66 months from 63. PIN data show that 32 percent of loans issued in the first quarter were for 72 months or longer.