Hot used car market stimulates car loans and borrowers

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The hot demand for used cars is turning the car loan world upside down.

The prices are so high that some lenders come out ahead in paying off outstanding car debts. And far fewer borrowers are underwater on their car loans, which means they don’t owe more than the car’s worth when they sell it. This is a tough time to buy a car, but a pretty good time to be in debt.

It is a ray of light amid rising prices for used cars. Americans are buying cars in near-record numbers, but a shortage of computer chips is robbing dealers of stocks. Severe shortage of cars for saleCars, including used cars, are more like houses – they grow in price and bring significant profits to their owners. According to Manheim Inc., the average used car price in June was $ 18,453, up more than 34% from the same period last year.

About 20% of owners were underwater trading their cars in June, up from 32% a year earlier, according to car dealership Edmunds. Those underwater owe an average of $ 3,848, 25% less than underwater borrowers at the same time in 2020.

The transition is also good news for lenders, who generally do not make enough money from selling cars to defaulted borrowers to cover outstanding loan balances. Four major banks more than covered their losses on outstanding auto loans in the second quarter, the first time in two decades they reported such reimbursement, according to Piper Sandler Cos.

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