- Negative equity reaches near-record levels, increasing rollover debt and total vehicle financing costs.
- Longer loan terms and higher rates are slowing equity buildup and raising monthly payments.
- Dealers face tighter trade-in constraints as buyers carry more debt into new-vehicle purchases.
Negative equity is on the rise in the U.S. auto market. New data from Edmunds shows that 30.9% of trade-ins for new vehicles carried negative equity in the first quarter of 2026. It’s the highest share of underwater trade-ins for any quarter since the start of 2021.
Rollover debt raising payments to record highs
Average negative equity rose 42% over the last five years to $7,183 in Q1 2026, according to Edmunds. The higher rollover amounts are adding to the total amount financed on new vehicles. In the first quarter, 26% of underwater trade-ins carried more than $10,000 in rolled-over debt, while 9.3% exceeded $15,000.
Consumers with negative equity financed an average of $55,970. Meanwhile, monthly payments for these borrowers rose to $932, a record high.
What’s fueling consumer debt
One of the key factors driving the debt imbalance is longer loan terms. More than 90% of customers with negative equity carried loan terms of 72 months or longer. 43% of those customers with underwater trades had loans extended to 84 months. These customers paid an average APR of 7.9%.
Another factor fueling the surge in negative equity is vehicle depreciation. Customers with longer loan terms often find that their vehicle depreciates faster than they can pay down the loan, especially in the first years of ownership, when depreciation is the fastest.
Customers are holding onto vehicles longer than they used to, but many are still unable to offset their debt. The average age of trade-ins with negative equity rose to 4.3 years, a record high, according to Edmunds. Analysts say many of those vehicles were purchased at elevated prices during the COVID pandemic.
Rising debt reshaping dealer deals
The rise in negative equity could sharply impact new car sales by limiting trade-in flexibility and narrowing vehicle choices for affected buyers. Customers who are underwater on their loans also face tighter lending constraints. That can reduce their ability to qualify for lower-cost loans. As a result, purchase decisions are shifting away from preference and toward what buyers can afford.
The trend is expected to persist as the gap between vehicle values, loan terms, and borrowing costs remains unresolved.
