On the Dash:
- About 26.6% of new car trade-ins were underwater in Q2 2025, the highest in four years.
- The average negative equity on these loans was $6,754, with 23.4% owing more than $10,000.
- Nearly 32.6% of underwater trade-ins rolled $5,000–$10,000 in debt into new purchases.
A growing share of American drivers are finding themselves “underwater” or “upside down” on their auto loans, reaching a four-year high, according to data from Edmunds.
More than one in four (26.6%) of new vehicle trade-ins carried negative equity during the second quarter of 2025. This is up from 26.1% in Q1 2025 and marks the highest level in four years. The last time a higher percentage was recorded was Q1 2021, when nearly a third (31.9%) of new car trade-ins were underwater.
Being underwater on an auto loan isn’t a new phenomenon. Still, the combination of affordability pressures, negative equity and higher interest rates is creating a challenging financial environment for American car buyers. The average amount owed on upside-down loans was $6,754, slightly lower than Q1 2025’s $6,880 but up from $6,255 in Q2 2024.
Many consumers are rolling negative equity into their next vehicle purchase, further increasing their debt burden. Nearly a third (32.6%) of underwater trade-ins had between $5,000 and $10,000 in negative equity, a slight uptick from Q1 2025’s 31.9% and up 2.4% from Q2 2024. About 23.4% owed more than $10,000, while 7.7% owed over $15,000.
Trading in a vehicle too early or rolling debt into a new auto creates a cycle of high-interest debt that’s difficult to escape. Buyers who financed a new vehicle after trading in a car with negative equity have an average monthly payment of $915. It’s the highest on record for this group of borrowers and $159 above the industry average. These consumers also financed an average of $12,145 more than typical new-vehicle buyers.
