An increasing number of American car buyers are in a difficult financial position, owing more on their auto loans than their vehicles are worth. A recent report from Edmunds revealed that this trend continued to worsen in the third quarter of 2025. The average amount of negative equity on a trade-in, often called being “upside down,” surged to an all-time high, painting a concerning picture of consumer debt and automotive affordability.
A Four-Year High in Underwater Trade-Ins
The data shows a clear and troubling trend: more car owners are trading in vehicles with negative equity, and the amount of debt they are rolling into their next loan is substantial. In Q3, 28.1 percent of all new vehicle trade-ins had negative equity, a four-year high not seen since the first quarter of 2021. This figure is up from 26.6 percent in Q2 and 24.2 percent in Q1.
The average amount owed on these upside-down loans reached a record-breaking $6,905. This figure surpasses the previous high set earlier in the year of $6,880, as the nationwide financial burden on consumers grows heavier every month. The report also sheds light on the scale of this debt. Nearly one-third, or 32.9 percent, of all car owners with negative equity owed between $5,000 and $10,000.
Even more concerning is the growing share of consumers carrying five-figure debt. For the first time on record, nearly one in four, or 24.7 percent, of trade-ins with negative equity carried more than $10,000 in debt. Another 8.3 percent owed more than $15,000, compounding the already difficult financial challenge of purchasing a new vehicle.
What’s Driving the Debt?
Edmunds points to several factors fueling this rise in negative equity. Much of it stems from loan decisions made during the peak of the pandemic-era market, when vehicle prices were at unprecedented highs. Consumers who purchased cars during that time often paid a premium, and as the used market has cooled and vehicle values have depreciated, they are now left with a significant gap between their loan balance and their car’s worth.
“The sheer amount of debt consumers are carrying in their trade-ins should be a wake-up call,” said Ivan Drury, Edmunds’ director of insights. “Nearly one in three upside-down car owners owe between $5,000 and $10,000 — and a growing share owe far more than that. Much of this stems from shoppers trading out of vehicles too quickly, or carrying loans taken out during the pandemic car market frenzy, when prices were at record highs. Those choices are now catching up, making it far harder to buy again without piling on even more debt.”
This cycle of rolling debt from one loan to the next has a direct and significant impact on monthly payments. According to the report, the average monthly payment for a buyer who rolled negative equity into their new loan was $907 in Q3. This is $140 more than the overall industry average of $767 for a new vehicle loan, demonstrating the immediate financial strain these decisions place on consumers.
Navigating the Financial Strain
While the data presents a challenging picture, Edmunds emphasizes that consumers are not without options. The key is to understand your financial position before making any decisions about trading in a vehicle.
“For many car owners, there’s no quick fix for being underwater. It’s about minimizing how much deeper you go,” said Joseph Yoon, Edmunds’ consumer insights analyst. “If you can, wait until you’ve paid down more of your balance before trading in. But if you do need to replace your car, make sure your next purchase fits your budget, not just your needs. The right vehicle choice can prevent a short-term decision from becoming a long-term setback.”
Edmunds also offered a practical tip for those preparing to trade in an underwater vehicle: review your original loan documents for any add-on products. Items like extended warranties, service contracts, or tire protection plans can often be canceled. While the refund will likely be prorated, it can help reduce the total amount owed on the loan and lessen the negative equity you carry into your next purchase.
Ultimately, the rise in negative equity serves as a critical reminder of the importance of financial diligence in the car buying process. As vehicle prices remain high, and affordability is top of mind for all consumers, understanding the long-term implications of a loan is more important than ever for maintaining financial stability.
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