Auto Loans Are Getting Riskier

Some auto loan metrics indicate car loans are getting riskier.

The Wall Street Journal is reporting that more car loan borrowers are underwater.

According to Edmunds, 33 percent of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity. In comparison, underwater borrowers were 28 percent five years ago and 19 percent a decade ago. The average amount owed by these underwater borrowers through the first 9-months of 2019 was about $5,000.

The amount owed on the trade-in is wrapped into the new auto loan.

To help make the loan payments more affordable, the length of auto loans is becoming longer. But that also means that a smaller share of the monthly payment is going to pay down the principal, which could leave the borrower further underwater when this vehicle is traded-in.