Auto debt sits at record highs. Loan terms now stretch past seven years, and about a quarter of used-car buyers are already underwater when they trade in. The head of one of the country's biggest auto lenders says buyers are still in solid shape.
Capital One Auto president Sanjiv Yajnik told CNBC the bank isn't worried about rising car costs. That's despite prices, rates, and insurance all sitting higher than five years ago.
Yajnik has run the auto-lending arm since 2008. The bank's data shows the median car payment has climbed from $390 in 2019 to $525 today.
That's the number that grabs headlines. The part that doesn't get the same airtime is the ratio.
Capital One says payment-to-income has stayed flat at about 10% across every income group since before the pandemic. The dollar amount climbed, but the share of paychecks did not.
The standard danger line in auto lending is 15%. Roughly 80% of financed buyers sit below it.
Yajnik's view: a car isn't optional spending for most people. So buyers stay careful about what they take on.
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Edmunds reports 26% of used vehicles traded in through April 2026 carried negative equity. That means the buyer owed more on the old car than it was worth.
The average shortfall: $5,105. That's up 35% from 2019.
On new-car loans tied to an underwater trade-in, 90.2% had terms of 72 months or longer in the first quarter. 43% stretched all the way to 84 months. The average negative equity on those new-vehicle trades hit $7,183.
Cox Automotive ran the math on a $30,000 loan at 9%. An 84-month term costs $3,100 more in total interest than a 48-month one.
But the monthly payment is $264 lower. That's the exact reason so many buyers sign up for the longer loan.
The trap is simple. Save $264 a month, then trade in two or three years later, and the loan balance is still bigger than the car's value. The shortfall rolls into the next loan, and the cycle keeps going.
Edmunds insights head Jessica Caldwell put it this way: longer loan terms mean buyers pay down their balance more slowly. Trading in too soon leaves them holding more debt.
Yajnik's bet is that buyers will hold their cars longer to build up equity, even as repair bills climb. The math works on paper.
The real test comes when a job loss, a totaled car, or a recession forces a trade-in before the loan tips into the green. Capital One says the customer is healthy. The underwater numbers point to something else brewing underneath.
Both can be true at once - until they aren't.
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