Posted on: 07/09/2018

Do you know the meaning of “upside down or underwater” in auto lingo? Well, it's simple. The definition is negative equity. In plain language that means a vehicle owner has more owing on the auto than the value.

Edmunds reported that of the 3.3 million retail units sold in the first quarter of 2018, 43% of new-vehicle buyers had a trade-in. But, 32% or 457,000 vehicles had a negative equity, which was 14.1% of the new-vehicle market.

Example: Customer buys a new car with a purchase price of $25,000. The customer has a trade-in that is worth $17,000 with a remaining balance of $18,500.

The buyer must pay-off the balance owing ($1,500) on the trade or roll-over that amount to the purchase price of the new.

Edmunds senior analyst Ivan Drury said, “Customers who spend little time researching a vehicle and move too quickly into the purchase are more inclined to fall into negative equity.”