One expert is warning extending auto loan terms could be even riskier in 2020 should depreciation rates on used cars return to more normal levels, putting borrowers even deeper into negative equity.
Anil Goyal, executive vice president of operations at Black Book, told CUToday.info that used car depreciation rate that has hovered at a below-normal level of about 13% the past three to four years will rise to more traditional levels in 2020, near 16%.
Goyal recognizes lenders have been going out much longer on loan terms in order to keep payments affordable for borrowers as car prices rise, and that has contributed to more people with negative equity in their vehicles as they roll over into new loans, but he said 2020 is not the year to make this issue worse.
“The key for lenders who are extending loans beyond five to six years, like 84 months or longer, is to watch out for this higher depreciation and the impact it will have on collateral,” Goyal said.
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