Negative equity is when your current car is worth less than what you still owe on it. When you trade it in, that “extra amount” can get added to the new loan, making the new payments harder.
America’s Car Mart is mentioned as an example of where some people can still get approved for a car loan. The hosts’ message is that approval doesn’t automatically mean it’s a safe deal for the buyer.
Company
dealer add-ons (implied: "shock on their credit application")
The hosts imply that some dealers’ financing outcomes can surprise customers after the credit application—often because the final terms depend on underwriting results and deal structure. This is a reminder to review the final loan terms, not just the initial approval.
Concept
auto credit approval vs affordability
Just because a bank says “yes” to a car loan doesn’t mean the purchase is a good idea. You still have to make sure the monthly payments and total cost fit your budget.
Repossessed vehicles are cars that were taken back by the lender because the owner stopped paying. They can end up at auctions and may not be in great shape.
Dealer auctions are places where car dealers buy cars in bulk. If lots of cars show up at once, it can change what dealers pay and what kinds of cars they end up with.
“Dealer lots” are the physical inventory areas where dealers store and sell vehicles. The speaker is connecting auction inflows to what ends up on lots, implying that a wave of repossessed cars can worsen the average used-car quality available to shoppers.
A “repo business” is about taking a car back when someone can’t keep up with the payments. Repossession agents are the people who do that job, and they usually need to be licensed.
A “payment buyer” is someone who shops mainly by the monthly payment they want to pay. It can be helpful, but it can also make the total cost of the car less obvious.
Your monthly payment is what you pay each month to pay off the car loan. A longer loan can make that number look smaller, even if you end up paying more overall.
MSRP is the car’s sticker price set by the manufacturer. Dealers may sell for more or less than that, but it’s a useful starting number for figuring out what you can afford.
This is about a sales trick where the dealer keeps your monthly payment similar by stretching the loan out longer. The car may cost more overall, even if the monthly number looks okay.
A pre-purchase inspection is when a trusted mechanic checks a used car before you agree to buy it. It helps you find problems you might not notice during a test drive, so you don’t get stuck with surprises later.
CarMax is a used-car seller. They often let you return the car after you buy it, which can change how you do inspections—sometimes you can’t do it beforehand, but you can check it during the return period.
Carvana sells used cars, often online. They typically have a return period, which can affect when you’re allowed to get the car inspected—sometimes you can’t do it before buying, but you can during the return window.
The Hyundai Tucson is a small SUV made for regular commuting and errands. It’s meant to be practical and comfortable, with space for passengers and cargo. People may talk about the newest Tucson because it can feel more modern or better equipped than older versions.
A prepayment penalty is an extra charge if you pay off your car loan early. Before refinancing, you want to check whether your loan has this kind of fee.
They’re describing how the dealership can get paid by the bank for setting up your loan. If you refinance or pay it off too soon, the dealership’s payment from the bank can be taken back, so they tell you to wait.
LIVE
It's noon here in Venter City, New Jersey and Detroit, Michigan.
And this is Car Edge Live for Wednesday, May 20th with your hosts, me, Ray, here,
hanging out in my living room in Venter and well, Zach hanging out in a hotel,
I believe, somewhere and only somewhere in Detroit.
He's always somewhere, ladies and gentlemen.
Zach, how are you today, handsome?
They're fantastic.
Happy Wednesday, May 20th.
Grateful to be with you here.
Not in a hotel, actually in a big, beautiful office, but yes, in Detroit.
Grateful to be in the Motor City.
Dad, they show is brought to you by caredge.com, a friendly reminder, folks,
for the past six years, me, my dad and our incredible team have been providing
car buying services, research tools and so much more back at caredge.com.
Again, if you're interested, we talk about it every day, but click on
car buying service up at the top, scroll on down and start with a free consultation.
The thing I love about our free consultation, dad, and you know what it is
that I love about our free consultation, please share, share with us.
You want to learn more about what I love about our free consultation?
It's that to meet with real human beings.
You know who those real human beings are?
Justice Annie, Tina, Mitch and Tony, we've got an awesome team.
Shout out to them, learn more about how we can help you and share what you're up to.
Now, dad, today's show, the car market credit bubble, excuse me.
Hey, before we get to that, I have to ask you a Detroit specific question.
First, yes.
Yes. Do you know who the Motor City hitman was?
No. Do you know what Jim he fought out of?
I was about to say boxer.
And it sounds like a boxer.
He was a boxer.
Yeah. Who was this?
Thomas the Hitman Hurds from the Crump.
Jim, ladies and gentlemen, trained by the late great Emmanuel Stewart.
OK, that's enough of boxing history.
Sorry to have pestered you with that.
No, love it. Love the boxing history.
Today's show, dad, the credit market going bust for cars.
Here's the deal.
I actually reached out to this gentleman, Bill Plugh, this morning.
Hopefully we'll get him on the show with us in the future.
He posts the most incredible insights into the auto credit market
pretty much every single day over on LinkedIn.
And, dad, this chart shows you subprime 60 plus day delinquencies
all the way dating back to 1994.
Ready for this shocker?
Green is good, red is bad.
Look at what is going on in the car market right now
in terms of subprime loan delinquency.
Interestingly, prime loan delinquency totally fine.
What's going on, dad, for those that have subprime credit
and why should anyone who watches this show care?
You know, I don't know why anybody should care anymore.
You know, the whole world can go to hell in a handbasket.
It doesn't really matter anymore, OK?
What it shows is that the level of delinquency 60 days or later
late on car payments for subprime lenders or borrowers
is higher today than where it was the same time last year.
January is typically the highest month of the year for delinquencies.
But the trend is going up every month that the delinquencies are ticking up.
It had been higher than they had been for the same month of the year before.
So what does that mean?
It means that people that have bad credit,
people who have not handled their credit responsibilities well in the past,
continue to find themselves in difficulty when it comes to
utilizing the credit that they've been extended
to help try and get them back over the hump.
And and so many of these people are falling deeper and deeper
into delinquency and deeper and deeper into debt so that now having said that
and we and I know we're going to talk about it, you know,
because this is a huge, huge bubble, giant bubble.
It's a big ass bubble.
It's a bad, ladies and gentlemen.
OK, there is one point 14000000000 dollars worth of automotive debt,
which has skyrocketed in the last five years.
One point 68 trillion, dad, trillion with a two trillion.
I'm sorry, one point 68 trillion.
However, as as as everybody keeps trying to beat this horse,
which I think is on the verge of death, but it's still being beaten.
OK, is that there's this huge bubble associated with it.
There is not.
And the reason I say there is not is because only 15 percent of that
automotive debt, OK, is associated with subprime blending.
OK, 15 percent out of one point 68 trillion.
And the truth of the matter is prime borrowers, even in the worst of times.
OK, those prime borrowers falling behind is at less than one percent
in the worst of times at point nine percent.
So it is it makes for a great headline,
whether it be in the Wall Street Journal, automotive news or Car Edge Live.
OK, it really does.
It makes for because because they sound like such big numbers.
But it's minuscule in comparison to the rest of the of of what's owed.
So I'm I'm sorry to burst the bubble that doesn't exist.
At least in my opinion.
So this is what's so fascinating is we've seen for years now,
affordability of vehicles become
travelable. Yeah, tragically unaffordable.
And we have the latest data today that we're going to spend some time
on new vehicle affordability declines in April on higher prices and lower incentives.
So in April, new cars got even less affordable.
OK, yeah, that's been the reality for what, five years now.
Yes, the same exact time access to auto credit has increased
materially, the share of people who can get a proof for an auto loan is higher
today than it's ever been historically.
Now, it was actually higher a couple of months ago,
but if you look at just this year compared to prior years,
it's higher today than it ever was historically.
And at the same exact time that the loan term length that people are taking out
and the amount of negative equity that they're bringing into that new auto
loan are also at historical highs. Yes.
That subset of people that we're describing, yes, are relatively small
in the grand scheme of our debt-grazed society for auto loans.
Yes. But that subset of people represents hundreds of billions of dollars
in outstanding auto loans, and those people are screwed.
Like, that's what the data says.
And those people are the same people that for all intents and purposes
can go get approved for an auto loan at America's Car Mart,
a company that went bankrupt last year, or go to a local dealer
and they'll shock on their credit application.
Like, there are two key takeaways, I think, for our community in this.
Yes. One is a friendly reminder that just because you can get approved
for an auto loan doesn't necessarily mean you should buy a car.
Yes. You used to use the line with your salespeople.
Well, the bank approved you, so you must be good to go.
Something along, no, OK, as a customer, your financial,
your fiscal responsibility.
The other is that there are a heck of a lot of repossessed vehicles
making their way to the dealer auctions that are flooding
the car auctions and ultimately dealer lots with pretty questionable
used car quality.
And I guess maybe the third dead takeaway for our community,
if they're entrepreneurial, go start a repo business.
There's a shortage.
There's a shortage of repo men and women out there.
You want to go make a quick buck?
Get your repo license or whatever heck that is in your state.
Go repo some cars.
You can get killed doing it.
I know if people have been, you know, but there's something here
that we're not mentioning.
What's that?
And you said, you know, well, people are getting screwed.
People are screwing themselves.
They have chosen to be screwed.
It is a conscious decision that people are making.
They have decided that they are more than willing to go deeper
and deeper into debt to to to pretend that they can afford the thing that they can't.
OK, and the dealers in the banks are in on it.
OK, they're all they're saying, hey, you want to screw yourself?
We're going to help you. OK, it's just that simple.
We're here to help.
We're your friendly bank.
We're here to help.
You want to get screwed?
We want to screw you.
We're going to help you.
So again, that's simple at this point.
That's that's again where I think the big takeaway for our community is,
you know, my own personal responsibility to myself.
What can I afford?
Let's talk about that.
What's a reasonable amount that I can afford for a vehicle that's critically
important, pre-approval, do not go into a car dealership, do zero research
and just take the first auto loan finance rate they offer you.
Do not get a pre-approval.
Do the homework, go through the rigmarole, find a local credit union
and submit your application there.
Do your homework on the financing side.
Many people think I negotiated a great deal at the dealership,
but then I give to the finance office and it can all be unraveled.
So I think those are two huge key takeaways.
How much can I actually afford and getting a pre-approval?
Here's the other thing.
What's that?
If I may, there is no excuse for a human being today with the advent of the
internet to not have a firm grasp as to what they can or cannot comfortably
afford. And so there is no excuse for a customer to walk into a dealership
and not have any idea as to what it is that they can afford.
And what do I mean by that?
Because we know, statistically speaking, 85% of the people out there
are payment buyers.
What the industry refers to is payment buyers.
All they care about is how much their monthly payment is going to be.
What a payment buyer needs to understand is the shorter the term,
the better off I'm going to be, which means I might have to live
without some of the things that I might want.
I might just have to concentrate on my needs, which are cheaper than my
wants. And I need to fully understand that if I want to be at $300 a month,
or $500, whatever that monthly payment is, and I don't want it to exceed 60
months, I need to be keenly aware as to what that translates into as far as
MSRPs of vehicles that I can look at.
Well, MSRP is in one case because look at a brand like Jeep where you can get
a discount of 20% off of MSRP, but it's a guideline, yes.
Yeah, but it's a great guideline so that you don't allow yourself to be
talked in if what you can afford at the payment you want to be at for, say,
60 months is some type of $30,000 car.
You need to know that before you go to the dealership so that the sales
person doesn't sell you on a $50,000 car that they can get you that same
payment at for 96 months for an extra three years.
So it is incumbent upon us as consumers to know what it is that we can
afford before we allow or I mean, if we're going to get screwed before we
allow ourselves to be screwed is to actually understand what we can afford.
I don't have a preach that any any better than I can.
You know, I keep equating it to needs and wants and needs are less
expensive than once and, you know, sometimes it's OK to do without what
you want. It's all right.
I can live without that Coca-Cola.
You know, do I want it?
Yeah, well, I give in probably not.
But the point is there's too much information available to everyone out
there, even if you go to your public library and use a computer there.
OK, for like my brother, who doesn't have a computer or a cell phone,
there are ways to get the information.
So there's no excuse today.
It is incumbent upon us.
Let's come to the chat here, pops.
We've got a very thoughtful contribution.
This is from Jason Kerry.
Thank you, Jason.
You really appreciate it.
How common is it for customers to request to have a used vehicle
looked at by an independent mechanic prior to agreeing to buy a vehicle?
My mom is shopping and nervous to make the request at the dealership.
Dad, do you want to talk about pre-purchase inspection?
That's the word, Jason.
You're going to want to Google, chat, GPT, whatever it is.
And while you're doing that, I'm going to pull up a guide we have
on pre-purchase inspection.
How common is it?
It's not as common as it should be.
You, as the buyer, are in my mind entitled to get a independent set
of eyes to look at that vehicle.
I am not going to sit here and suggest that a dealership might do something
nefarious, might not have done all the reconditioning that they should have done
or said they might have done.
But I will suggest that sometimes mechanics miss things.
And just like when you buy a house or a condominium, whatever,
you have a clause typically for a home inspection.
You need to do the same with a pre-purchase inspection for a used car.
Now, having said that, not all dealerships are amenable to that.
Some will let you take it to an independent source to get it checked out.
Some will not.
Some, like CarMax and Carvana, have return policies.
So they won't let you do it beforehand, but you can certainly do it within the
window of the return policies that they have.
So don't be nervous, requested.
If the dealership won't allow it, then go find a pre-owned car at a different
dealership that will.
Yeah, for me, it's a red flag.
It's a non-start.
If I can't get an independent set of eyes on a used vehicle,
I'm not going to do that car deal.
The other thing I'll mention is that frequently we see customers negotiate
the price of the vehicle, get a pre-purchase inspection done,
and then negotiate more based on what they find.
So that's totally appropriate as well.
I will just simply comment here.
We have this guide.
If you Google search, what is a pre-purchase inspection?
And then CarEdge, it'll pop up on Google or ChatGPT.
And who are these two young guys?
We look young, man.
This is one of our original videos on the CarEdge main channel.
We look like babies.
Yeah.
Before your hair was so ringletty, curly, and hell, when my face was 10 pounds thinner.
If you hear from Charlie's hamburger, I still had the bad teeth even back then.
So from Charlie's hamburgers.
Just had one dead today, $45 for a 45 minute PPI.
Perfect.
Great.
Love seeing people get pre-purchase inspections.
Super important on used vehicles right now.
Then we had another thoughtful contribution that comes through here.
Thanks, Steele Valor.
Got a Hyundai 2026, Hyundai Tucson Santa Fe.
Maybe.
Nope.
Tucson Hyundai 2026.
Wow.
This I feel like I can't read.
Got a Hyundai 26 Tucson SC.
There we go.
For $29,850 on Monday, $3,000 off.
Can I refine 90 days that I get host?
Need more info to see if you got host.
Kind of doubt it though.
But can you refine 90 days?
You can refine.
Sooner or later, if you want to.
Yeah, what?
But you need to make sure is that the car loan you signed up for does not have a
prepayment penalty.
Some loans do.
Most loans do not.
Now, the dealership will tell you, well, if you want to refinance it or pay it off,
you have to wait 90 days.
The reason they tell you that is because they get a kickback from the bank that
they put the loan through and if that loan gets paid off within 90 days, they
lose that kickback and it gets charged back.
So that's why they don't want you to pay it off sooner than 90 days.
But yeah, let the let the bank book the loan.
So at least it's on their books and you can get a current payoff.
And then as soon as it's on the books, which usually takes about a week to 10
days, you can pay it off assuming it does not have a prepayment penalty.
From Rich, very kind.
Rich, I appreciate it.
I got nothing to say.
Keep on trucking.
Well, Rich.
What kind of truck is that?
What kind of special truck is that, Rich?
I've got a challenge for you.
This can be tomorrow.
In an hour, I'll be over at General Motors, have some meetings over there.
Give me something interesting on the GM side of things that we can look at tomorrow,
Rich, or even on today's show, share something on the GM side.
That'll be interesting to us.
Now, let's come here from Clyde.
Yes.
Well, the preapproval calls a hard inquiry on a credit score.
That's a great question, Ted.
Well, if it could, there's what's known as a soft pull and then there's a hard pull.
And to get an actual approval, typically they have to do a hard pull.
The soft pull will give you a preliminary approval subject to the hard pull.
So typically, yes, that would be a hard inquiry hit to your credit.
That's the right question to ask, though.
Is this a soft credit pull or is this a hard credit pull?
And if they answer soft and you're good to go, it's hard.
You know what you're getting into.
Dad, we have here from Misham.
Hi, guys.
Found your channel recently, needing to buy a new car soon as mine just died and your
tips have been wonderful.
Dad, we don't talk about it enough.
We have so many free things available back in CarEdge Land, whether it be the videos
over on the main CarEdge channel or importantly, Deal School.
I don't think we did a good enough job this year promoting Deal School.
It's on YouTube here.
Deal School is, what is this?
Like a 20 minute video that you did?
Let's see here.
If you know, oh my gosh, it's 30 minutes.
It's 30 minutes over on YouTube and it's chaptered out every single chapter of what
we talk about.
So Deal School is a fantastic resource.
We also have a checklist here that you can work through as you go through Deal School.
So please, please, please.
It's just Google search CarEdge Deal School or go to CarEdge.com slash Deal School Misham.
I think that's a great resource and one we don't talk about enough and it is.
Free.
It is free.
And the other thing that we don't talk of enough.
Community friend.
Yeah, the community forum, which is another perk that is free that is just filled with
such great information and help from others who find themselves well in the same position
you are trying to buy a vehicle and trying to do it in an informed and intelligent manner.
Exactly.
Hey folks, going to be a kind of quick show, excuse me, for us today because that I got to
appreciate everyone for tuning in today.
Again, if we can help you out with anything, it's CarEdge.com.
Me, my dad and our incredible team are here to help you.
So please take a peek back at the website.
We're back tomorrow with more CarEdge live and dad, I move into my new office tomorrow.
So I can't wait to set it up and have it look really nice.
So really excited to do that.
And we'll be working for some creative direction from you and our community.
Well, I'm pretty sure that life-voring that you've had behind you for weeks now
should be prominently displayed.
I need suggestions.
Leave some suggestions in the chat in the comments.
What should I put behind me in the new office?
I actually want to set it up really nice.
Have it be a good setup.
So share with me some suggestions for what should go behind me in the new office, please.
Well, it shouldn't be a couch in a chair like it is here.
But yeah, make it look office-y, buddy.
Oh my God, it'd be so funny if I do the green screen again.
Take a photo of your background.
Yes.
Anyway, all right.
Yes, yes.
All right, folks, we're back tomorrow.
Love you, Dad.
Enjoy the afternoon.
Love you too.
Say hi to all my friends over at General Motors for me if I haven't.
Rich said a Wednesday quickie is better than nothing.
And Rich couldn't agree more.
Well, there you are.
Yeah, yeah.
You know, we've been talking about hard pulls, soft pulls, and Wednesday quickies.
It doesn't get any better than this, ladies and gentlemen.
What?
I've been good.
If you like the show, please take a moment to rate, review, and subscribe.
It really does help the show to grow.
Thank you for listening.
About this episode
The hosts break down a “car market credit bubble” using delinquency data, arguing subprime borrowers are falling behind while prime delinquency looks “totally fine.” They also point to riskier loan structures—longer terms and negative equity—plus a surge of repossessed vehicles hitting dealer auctions. The conversation shifts to practical buying advice: get pre-approval carefully, watch for dealership financing tactics, and consider an independent pre-purchase inspection (especially within return windows).
Today on the CarEdge Live, Ray and Zach discuss the latest info on auto loans. Tune in to learn more! Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com
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