The Blubber

Upside-Down Auto Loans Hit Record Highs

A growing number of car buyers are trading in vehicles worth significantly less than what they still owe—and the amount of negative equity is reaching record-breaking levels.

Imagine rolling nearly $7,000 of debt from your old car into a loan for a new one. That’s the reality for many consumers right now, and the situation is even worse for electric vehicle owners trying to trade in their cars.

Being "upside down" on a car loan makes it harder to afford a down payment and increases the risk of taking on too much debt for the next vehicle.

1 in 4 Car Buyers Are Underwater on Their Loans

New data from Edmunds shows that in Q4 of last year, 24.9% of trade-ins toward new car purchases had negative equity—up from 20.4% in late 2023.

While this spike is concerning, it's not unprecedented. Back in Q4 2019, before the pandemic, 32.7% of trade-ins were underwater.

The Debt Load Is Worse Than Ever

The real shocker? The amount of money people owe on these upside-down loans is hitting all-time highs.

• The average negative equity in Q4 was $6,838—an all-time record.
• 1 in 4 consumers with negative equity owed more than $10,000 when trading in their car.
• 8.5% of borrowers were $15,000 or more underwater when upgrading their vehicle.

People Are Trading in Newer Cars

Many of these trade-ins aren’t old beaters—they’re relatively new. The average age of an upside-down trade-in is just 3.3 years.

This trend has held steady over the past five years, with negative-equity situations typically involving vehicles around 3 years old.

Why Are Borrowers Struggling?

One major reason? How car loans are structured.

• Interest on car loans is front-loaded, meaning that in the first few years, a larger portion of each payment goes toward interest rather than reducing the principal loan balance.
• If you're paying anything other than 0% interest, you’re barely building equity in the car early on.

What Changed? The Used Car Boom Is Over

For a brief period in 2021 and 2022, soaring used car prices protected borrowers from negative equity.

“Resale values were so high that you could do no wrong,” says Ivan Drury, director of insights at Edmunds.
“You could drive a car for a year, bring it back to the dealership, and they might pay you the same amount you originally paid.”

This wild market was fueled by pandemic-driven supply chain issues, which limited new car production and sent prices skyrocketing for both new and used vehicles.

Now? Prices have stabilized, leaving many car buyers stuck with loans that no longer match their car’s actual value—and trading in means taking a serious financial hit.