Upside-Down Auto Loans Skyrocket

Record Number of Auto Loans Now Underwater as Negative Equity Hits New High

A recent report from Edmunds has revealed that nearly one in four car owners trading in their vehicles for new ones are dealing with negative equity, meaning they owe more on their loans than their cars are worth. This marks the highest level of upside-down loans ever recorded, raising concerns about the financial burden on consumers.

According to the data, 24.9% of trade-ins in the last quarter of 2024 involved loans where the owner owed more than the vehicle’s value. This is a notable increase from 24.2% in the previous quarter and 20.4% during the same period a year earlier. The average amount of negative equity has also reached an all-time high of $6,838, compared to $6,458 in the previous quarter. More concerning, nearly a quarter (24.6%) of those with negative equity owed over $10,000.

Edmunds’ Head of Insights, Jessica Caldwell, explained that while negative equity isn’t new, the increasing number of borrowers carrying massive balances is troubling. “Not too long ago, more than a third of trade-ins had some level of negative equity,” she said. “The difference now is that more people owe thousands of dollars beyond their vehicle’s worth, making it much harder to break free from the debt cycle.”

The impact of these upside-down loans is being felt in monthly payments as well. Edmunds found that those trading in vehicles with negative equity in Q4 2024 had an average monthly payment that was $159 higher than typical new car loans. Additionally, these buyers financed $12,388 more than the industry average—both of which are record-breaking figures.

Several factors have contributed to this growing problem. Many consumers who purchased vehicles during the pandemic-era inventory shortages in 2021 and 2022 paid well above sticker price. This made it harder for them to build equity in their loans over time. Now, as automakers offer more incentives and prices normalize, those same vehicles are worth significantly less than what owners originally paid. Meanwhile, trends such as extending loan terms to keep monthly payments lower and trading in vehicles too soon have further fueled the rise in negative equity.

Ivan Drury, Edmunds’ Director of Insights, warns consumers against making hasty financial decisions. “If you’re significantly upside down on your car loan, the best thing you can do is hold onto your vehicle, continue making payments, and stay current on maintenance,” he advised. “Trading in a vehicle with substantial negative equity can trap you in a cycle of bad auto financing decisions.”

As vehicle prices and market conditions continue to fluctuate, financial experts recommend that consumers be cautious when financing new cars. Avoiding long-term loans, making larger down payments, and keeping vehicles for a longer period can help buyers avoid falling into the negative equity trap.