1 in 4 new car trade-ins are ‘underwater,’ marking a 4-year high — here’s how to avoid drowning in auto loans
A growing share of car owners are underwater on their auto loans, reports the car-buying resource Edmunds.
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According to a second quarter report, 26.6% of trade-ins toward new-car purchases had negative equity, up from 26.1% in Q1 2025 and 23.9% in Q2 2024 [1].
This is the highest share Edmunds has reported in four years, meaning a growing number of people are dragging additional debt into a new car purchase, putting them at risk of being underwater on their next purchase. That can create a debt spiral that is difficult to get out of — and the current economic climate can make it even more challenging.
"Affordability pressures, from elevated vehicle prices to higher interest rates, are compounding the negative effects of decisions like trading in too early or rolling debt into a new loan, even if those choices may have felt manageable in years past,” said Ivan Drury, Edmunds' director of insights. “And as buyers take on new loans with much higher interest rates than those from just a few years ago, even potential tax deductions can't meaningfully offset the thousands more they'll pay in interest. With a growing share of upside-down owners thousands of dollars in the red, many are at risk of getting stuck in a cycle of debt that only grows harder to break over time.”
What is the impact of being "underwater" on your auto loan
Being "underwater" on your car loan isn't an unusual situation. When you purchase a new car, just driving it off the lot decreases its value — meaning you likely owe more than the car is worth. But a few months of payments will bring the loan balance closer to the vehicle's market value.
But Edmunds is reporting a higher rate of negative equity when buyers go to trade in their vehicle for a new car — meaning months or even years after purchasing a car, buyers are still under water. And not by insignificant amounts. The average amount owed on underwater auto loans in the second quarter was $6,754, Edmunds found. A whopping 32.6% of underwater trade-ins had between $5,000 and $10,000 in negative equity, compared to 30.2% in Q2 2024.
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