Car Buyers Owe Record $7,214 More Than Their Trade-Ins Are Worth — Nearly 1 in 3 Americans Underwater

American car buyers are drowning in debt they can't escape. In the fourth quarter of 2025, the average person trading in a vehicle with negative equity owed $7,214 more than their car was worth. That's the highest amount Edmunds has ever recorded, and nearly one in three trade-ins are now underwater.

The numbers get worse when you look deeper. A record 27% of underwater trade-ins carried at least $10,000 in negative equity. Among those deeply underwater buyers, 17.4% owed between $10,000 and $15,000, while 9.2% carried balances above $15,000. Both figures are all-time highs.

Read Also: CarCupid Goes Hollywood: Featured on Spike's Car Radio with Jerry Seinfeld This April

How Buyers Get Trapped

Negative equity — being underwater or upside down — happens when you owe more on your car loan than the vehicle is worth. During the chip shortage of 2021-2022, new vehicle inventory was scarce and incentives were minimal. Many buyers paid at or above MSRP with fewer discounts available. Some who normally would have leased were pushed into purchases instead.

Those buyers expected to trade in their vehicles after three years, just like they always had. But when those 2021-2022 buyers started trading in their vehicles in 2024-2025, many discovered they owed thousands more than their cars were worth.

Joseph Yoon, consumer insights analyst at Edmunds, explained the severity:

"While these levels of negative equity are nothing new… it's the amount underwater that is the real, and troubling, story."

The percentage of underwater trade-ins hit 29.3% in Q4 2025, near the all-time high of 31.9% set in early 2021. But the average amount owed has exploded far beyond previous records.

The Monthly Payment Crisis

When you trade in a car with negative equity, that debt doesn't disappear. Dealers roll it into the loan for your next vehicle. You're effectively financing two cars at once — the new one you're buying and the debt leftover from the old one you no longer own.]

Buyers who rolled negative equity into a new loan in Q4 2025 paid an average of $916 per month. That's a record high and $144 more than the industry average monthly payment of $772. These buyers also financed an average of $11,453 more than typical new-vehicle customers.

To make those massive monthly payments somewhat affordable, buyers are stretching loan terms to unprecedented lengths. Among new-car purchases involving negative equity, 40.7% are financed with 84-month loans. That's seven years of payments on a vehicle that's already carrying debt from the previous car, creating a debt cycle that's almost impossible to break.

Why Prices Keep Rising

The average price of a new car hit $49,353 in late 2025. That's 30.3% higher than the $37,876 average in February 2020, before the pandemic. Even accounting for inflation, vehicles have gotten significantly more expensive.

Trucks and SUVs, which Americans prefer over sedans, cost more than the compact cars that dominated sales decades ago. Buyers who want larger SUVs with modern features are paying $45,000, $50,000, or more. Finance that amount with a modest down payment and you're immediately underwater the moment you drive off the lot.

The EV Problem

Electric vehicle buyers faced an even worse situation. In Q2 2024, Edmunds reported that the average EV buyer was over $10,000 underwater on their loan. Early EV adopters who paid $60,000 or more for electric vehicles in 2021-2022 watched their trade-in values collapse as new EVs got cheaper and federal tax credits made new purchases more attractive than used ones.

Dealers Are Feeling It Too

Brian Maas, president of the California New Car Dealers Association, told Automotive News that the negative equity problem was becoming "unmanageable" for dealers.

When a buyer shows up with $10,000 or $15,000 in negative equity, the dealer faces a difficult choice. Roll all that debt into the new loan and the buyer's monthly payment becomes so high they might not qualify for financing. Some dealers are extending loan terms to 84 or even 96 months, or steering buyers toward less expensive vehicles than they want. But these solutions just kick the problem down the road.

No Easy Way Out

Breaking the negative equity cycle requires painful options: keep the car much longer than you want, make a large down payment on the next vehicle to cover the negative equity, or take the financial hit by paying off the debt out of pocket. Most people don't have thousands in cash available for any of these solutions.

The negative equity crisis creates ripple effects throughout the automotive market. Buyers trapped in underwater loans can't trade up to new vehicles, reducing sales. Those who do trade in with massive negative equity end up with monthly payments so high they stretch budgets to the breaking point, increasing default risk for lenders.

For American car buyers, the negative equity trap has become the new normal. The $7,214 average is a record — but given current trends, it probably won't be a record for long.