Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis: by piling on debt to such a degree that it often exceeds the car’s value. This phenomenon can leave owners trapped.
By AnnaMaria Andriotis and Ben Eisen Nov. 9, 2019 5:30 am ET John Schricker took out a loan to buy a car in 2017. Then he took out another. And then another.
Rising car prices have exacerbated an affordability gap that is increasingly getting filled with auto debt. Easy lending standards are perpetuating the cycle, with lenders routinely making car loans with low or no down payments that can last seven years or longer. Mr. Schricker would like to get a new car because the Jeep Cherokee started having mechanical problems this year. He recently discovered the vehicle was in an accident before he bought it, a fact he said the dealership didn’t disclose. The dealership, Rotolo Motors, didn’t return requests for comment.
Underwater car loans are more prevalent among subprime borrowers, according to ratings firms. That is in part because consumers with lower credit scores often don’t have the means to pay off the remaining balance on one car loan before buying their next vehicle. The Chevy broke down in 2017 shortly after Ms. Finley took it for an oil change and she couldn’t afford the repairs. She says that Valvoline installed a faulty oil filter and she is suing the company. Valvoline said it was aware of her allegations and had no comment.
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