The Canadian auto loans sector is seeing a lot of auto refinancing and long-term loan terms of late. This has resulted in an increase in the negative equity in auto loans. A negative equity is a term where the consumer needs to pay for the vehicle more than what it is worth for.
The negative equity can increase many folds when a customer buys a new vehicle even before paying off the dues for his old vehicle. This might even put the customer in a trap. There is no doubt that vehicle depreciation is also a factor that is causing negative equity at the moment.
One other factor that is contributing greatly to the negative equity in the auto loans in Canada is the customers going for smaller monthly payments. This means that the loan terms run into years. They do end up paying a lot of times more than the value of the vehicle when compared to the market price.
Consumers are not willing to make the cash down purchases these days and thereby they opt for financing options. They do this for all kinds of goods and services now including the taxes. There is also a chance for negative equity increase caused by the dealers offering refinancing and other options.