Negative equity in car trade-ins hits record high, with $7,200 average debt

A new report from Edmunds reveals a concerning trend: more Americans are trading in their vehicles without realizing they're falling deep into negative equity. On average, this negative equity exceeds $7,200, and for a quarter of owners, it reaches five-figure sums.

Drivers Find Themselves Underwater

By the end of 2025, 29.3% of trade-ins occurred in "underwater" conditions—where the remaining loan balance surpasses the car's current value. This marks the highest rate since 2021. The issue is particularly acute for those who purchased vehicles during the shortage and record-high prices, only to face accelerated depreciation now.

For 27% of drivers, the debt exceeds $10,000, and for 9.2%, it's over $15,000. This isn't just a financial misstep but a debt trap that can strain a family's budget for years.

Why the Situation Is Worsening

The lingering effects of the pandemic continue to impact the market. Cars were often bought with longer loan terms and minimal discounts. Now, their residual value is dropping faster than the loan balance decreases.

Edmunds notes that buyers with negative equity are financing an average of $11,453 more than typical customers. Their monthly payments hit $916—nearly 20% above the average.

84-Month Loans and the Debt Carousel

To mask the burden of payments, banks increasingly offer 84-month loans. While this technically lowers the monthly payment, it makes it almost inevitable that owners will fall back into negative equity when they next upgrade their vehicle. Already, 41% of buyers with negative equity history are using such loans.

Experts warn that this is creating a debt cycle, where each subsequent trade-in only deepens the financial hole.