According to a new Edmunds report analyzing data for the second quarter of 2025, an increasing number of car owners in the U.S. owe more on their auto loans than their vehicles are worth.
The analysis shows that 26.6% of new cars sold through trade-ins in the second quarter had negative equity — the highest level since the first quarter of 2021, when 31.9% of trade-in vehicles were “underwater” during the pandemic.
Edmunds reports that the share of cars with negative equity has steadily increased since 2022, as has the average debt amount. In 2025, the average negative equity reached $6,754, up 50% from 2022. Additionally, nearly a third (32.6%) of these vehicles had negative equity between $5,000 and $10,000.
Moreover, this increase occurred even as buyers are keeping their cars longer: the average age of a trade-in vehicle rose from 3.2 years in 2022 to 3.8 years in 2025.
“The fact that consumers do not have enough funds to pay off their auto loans is not a new trend, but rates are higher than ever in the modern financial environment,” said Ivan Drury, director of analytics at Edmunds.
Drury noted that worsening vehicle affordability, including high prices and rising interest rates, “amplifies the negative effects of decisions like selling a car too early or rolling debt into a new loan.” He also warned:
“With the growing share of owners rolling thousands of dollars of debt into new loans, many risk entering a debt cycle that becomes increasingly difficult to break over time.”
Despite rising debt levels, the share of new cars purchased through trade-ins remained relatively stable, indicating that growing negative equity has not deterred buyers from using this option when buying new vehicles.
At the same time, drivers using negative equity to buy new cars face record-high costs. According to Edmunds, such buyers had an average monthly payment of $915 in the second quarter — the highest on record and 21% higher than the overall average payment of $756.