More car buyers find trade-ins stuck with debt

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Brian Reed, a vice president at Capital One Auto Finance, based in Plano, Texas, said a major contributor to the problem is that consumers have sought longer loans to hold down their monthly payments.

“In the late 1970s and early ’80s, most loans were for 36 months,” Reed said. “Now, the average term is about 58 months, and some lenders go as long as 72 months or 84 months.”

Consumers with long-term loans who trade their cars frequently will have built up less equity and be more likely to be upside down, he pointed out.

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The best strategy, Reed said, is “to try to match the term of the loan to the time you intend to keep the vehicle.”

Rob Gentile, director of automotive information products for Consumer Reports, based in Yonkers, N.Y., said consumers who know they’re upside down on loans often don’t bargain well for new cars, since they’re distracted by how that unpaid loan is going to be handled.

“Consumers should settle on the price (of a new car) before anything else,” Gentile said.

Gentile also recommends consumers finish paying down a loan before they trade a vehicle, especially if it’s been a good, reliable car.

“If you roll what you owe into the new car loan, you’re financing the old car at the same time you’re financing the new car,” he pointed out. “That will cost more in interest — and your monthly payment will have gone up, too.”

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