Trying to find the percentage of people who trade in a vehicle before its paid off.

A buddy of mine is seriously considering buying a new car, even though it makes no financial sense for him right now for many reasons, not the least of which is that he still owes money on his current one. One of his main justifications is that although he doesn’t have his car paid off, he’s at least not upside down on the loan, so he’s got equity there. He first made the claim that the majority of people who are trading in a vehicle against a new one actually owe more on the loan then they will receive in trade. He then kind of backed off that claim, and now says the majority owe something on the vehicle they’re trading in, and probably about half are upside down. I think his estimates are way off, and am trying to prove him wrong. Any idea what the acutal numbers are, or any suggetions on where I could look up this data?

Interesting question. A quick Google search on “us auto financing statistics” came up with a Q&A from 4 years ago that indicated most people kept their vehicles for just over 5 years. I think most loans these days go for 5 years, so a very simple estimate would be that most people tend to buy a new car as soon as the old one is paid off.

From what I saw when I worked in a dealership, many people do trade in a car with a balance owing. Some trade in while upside down on their loan. It is not unusual to hear a car dealer ad on the radio say “We will pay off your loan no matter how much you owe!”
I think the car line has a lot to do with it. People buying Toyota Corollas, or a Nissan Sentra are more likely to trade while upside down than say a guy driving an S class Mercedes or a 7 series BMW.
Don’t forget a lot of people lease cars now, so in essence when the lease is up and they lease a new one, they are owing on the car.

Leasing expert here. I don’t agree with you at all. And, referencing the OPs question, you certainly wouldnt include people who lease in that group.

People that lease are neither upside down nor owe money when they turn the car back in. They simply turn the car back in. They may buy or lease another car but are not obligated to.

Leases are popular because the payment is lower but, having provided leasing advice on many many automotive forums for the past 6-7 years, I can tell you that 90% of lease customers do not have a clue what they are doing and pay too much anyway.

Car salesmen love lease customers. 9 out of 10 times.

Two questions:

  1. At the end of the lease if the customer wishes to keep the car, what does he have to do?
    A) Drive away, the car is paid for it’s his.
    B) Bring a pile of money to the lease company.

  2. In the event the driver lets his insurance lapse the day before the lease ends, and then totals the car on the way to the lease turn in, what will the lease company say?
    A) No problem, it’s your car.
    B) Will you be paying that off by cash or check?

At the end of a lease, the owner either has to pony up a pile of money to keep the car, or turn in a car in good condition. The lease company is contractually obligated to take the car in lieu of money assuming the car is in good condition, and does not have too many miles. Try taking back a car with a crumpled fender and four bald tires, or with too many miles and you will find up how the terms upside down and lease are not mutually exclusive.

I don’t have hard numbers or a cite, but I can give you anecdotal stuff from my husband. He’s a car salesman. He’s also a very financially responsible person - we drive an '88 S10 and an '01 Cavalier, both of which were paid for in cash. The amount of people that come in upside down on a car and want a new one makes him gnash his teeth in despair.

I just asked him for a gut check estimate, and here’s what he said:

  • More than half of the people that come in to buy a vehicle still owe money on their current car, and wish to roll the existing loan into the new one.

  • More than 1/4 of people who come in to buy a vehicle not only still owe money on their current vehicle, but owe more on the vehicle than it is worth (and are therefore “upside down”). Sometimes A LOT more than it is worth.

My husband has, more than once, told people flat out that they’re making a bad decision, and he’d prefer they come back in a couple of years and buy a car from him then.

We live in what I’d call a conservative farming community, which would make me tend to think that the numbers on that would be somewhat better than the national average. But I could be all wet on that.

Anyway, it’s pretty common. That doesn’t, of course, mean it’s smart.

What car line does your husband sell for?

This is the result of a Kelley Blue Book study saying that 30% percent of buyers are upside down when they trade and just go for longer terms to buy a vehicle. I would guess that the percentage of folks who owe something when they buy a new car is reasonably high.

Even though its common, it doesn’t sound like a smart thing to do.

I personally have leased in the past, but at the time I worked for a car company subsidiary and received a pretty substantial discount on the vehicle. In the end it was the right decision since the car market went into the crapper and I was able to get out of the lease and buy a new car with some very nice incentives. I realize that only that combination of events made leasing a good call. I wouldn’t do it again.

Currently, Pontiac/GMC.