Negative equity on trade-ins hits a new high

Rising vehicle prices, longer loan terms and higher rates are pushing more U.S. buyers deeper into negative equity.

On the Dash:

• Nearly 30% of trade-ins toward new vehicles are underwater, the highest level since early 2021.
• The average negative equity on trade-ins has climbed to a record $7,214, with more buyers carrying five-figure balances.
• Longer loan terms are increasingly used to manage debt, but they raise the risk of repeating the negative equity cycle.

Negative equity is emerging as a growing financial pressure for U.S. car buyers, and new data from Edmunds shows the problem is deepening as higher prices, longer loan terms and elevated interest rates collide.

In the fourth quarter of 2025, 29.3% of trade-ins toward new-vehicle purchases were underwater, meaning owners owed more on their vehicle than it was worth at the time of trade-in. That marks the highest share recorded since early 2021, when pandemic-era market disruptions were at their peak.

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More concerning for both buyers and dealers is the size of the debt being carried forward. The average amount owed on underwater trade-ins reached a record $7,214 in Q4, the highest level Edmunds has ever tracked. More than a quarter of upside-down trade-ins (27%) carried negative equity of $10,000 or more, also an all-time high.

Edmunds attributes the trend to vehicles purchased during the supply-constrained years of the pandemic, when inventory was limited and discounts were scarce. Many buyers paid close to or above sticker price, often financing purchases with longer loan terms. Leasing options were also limited, pushing some consumers into ownership cycles that did not align with the rate at which loan balances declined.

As vehicle prices have normalized and depreciation patterns have returned, those loans are now aging into a market where values are lower than expected. The result is a widening gap between what many consumers owe and what their vehicles are worth, making negative equity harder to escape once it appears.

Data also shows a disconnect between ownership timelines and loan repayment. While the average age of underwater trade-ins has increased only modestly, the amount of negative equity has climbed sharply. Many buyers returned to the market on familiar replacement cycles, only to find their loan balances far higher than anticipated.

To manage those balances, more consumers are extending their next loan. Edmunds reports that 40.7% of new-vehicle purchases involving negative equity are now financed with 84-month terms. While longer loans can lower monthly payments initially, they often delay equity recovery and increase the risk of carrying debt into future purchases.

The financial impact extends beyond the trade-in. Buyers who rolled negative equity into a new loan paid an average of $916 per month in Q4, a record high and $144 more than the industry average. These buyers also financed $11,453 more than the typical new-vehicle customer, reducing flexibility and limiting options if financial conditions change.

Edmunds’s data highlights how easily negative equity can become a cycle. Rolling debt forward may provide short-term relief, but it often results in higher payments, longer repayment periods and fewer choices down the road.