According to a 2020 auto loan industry study, vehicle financing has surged to record highs, resulting in a substantial number of consumers facing vehicles with balances significantly exceeding their current value. The study reveals a staggering $1.2 trillion increase in auto loan debt, with an average loan amount of $32,000, suggesting a widespread accumulation of debt on vehicles. Over the last decade, auto loan debt has surged by an astounding 81%, illustrating a concerning trend where loan amounts frequently surpass the vehicle’s worth.
Lenders’ Response and Assistance Programs
To address this issue, various lenders, including TD Bank, are offering assistance to borrowers navigating overwhelming auto loans. TD Bank, a major auto lender, provides an FAQ section outlining assistance options for different hardships, including specific workout plans for automobiles, boats, and RV loans. They offer a dedicated short-sale program, guiding borrowers through the necessary documents, application procedures, and eligibility criteria.
Challenges Faced by Borrowers
For borrowers dealing with loans exceeding their vehicle’s value, options become limited. With the average loan exceeding the vehicle’s worth by thousands of dollars, selling or trading it only perpetuates negative equity. This predicament leaves individuals confined to their vehicles, lacking the financial means to settle the difference and move on.
The Role of Short Sales in Auto Loans
Similar to mechanisms used during the real estate crash of 2007–2009, lenders are employing short sales to prevent repossession and assist borrowers. Short sales offer a more favorable outcome for both borrowers and lenders by avoiding the costs associated with repossession, auction fees, and the inevitable shortfall from selling the vehicle at auction.
Benefits and Lenders’ Perspective
Lenders benefit from short sales as they save on repossession and auction expenses while ensuring a more market-appropriate value for the vehicle. By facilitating a direct sale at market value, lenders help borrowers evade potential consequences, such as owing the difference between the loan and the auctioned amount.
Looking Ahead and Resources Available
Recognizing the significance of addressing these upside-down vehicle loans, lenders are actively promoting programs like short sales to alleviate borrowers’ burdens. Resources like carshortsale.com offer comprehensive information on the process, emphasizing lenders’ commitment to aiding consumers in resolving their auto loan challenges.