Negative equity on trade-ins affects nearly a third of car buyers

For a growing share of new-car buyers with a vehicle to trade in, an unwelcome part of their old loan follows them in their new purchase: negative equity.

An estimated 30.5% of car buyers with a trade-in owe more than the car is worth, according to J.D. Power’s automotive forecast for March. It’s also known as being underwater on your loan or upside down.

The share of underwater buyers is up 4.2 percentage points from a year ago and has been growing since 2022. However, it’s not as high as it was before the pandemic: In 2019, the annual share of trade-ins with negative equity for new-car purchases was 33.6%, according to J.D. Power data.

“The recent trend has been toward mean reversion,” said Tyson Jominy, a senior vice president for J.D. Power.

The average amount owed on these underwater trade-ins reached $7,214 — an all-time high — in the fourth quarter of 2025, according to auto site Edmunds. Also, 27% of these trade-ins carried $10,000 or more in negative equity, also a record high.

“While these levels of negative equity are nothing new … it’s the amount underwater that is the real, and troubling, story,” said Joseph Yoon, Edmunds consumer insights analyst.

When you trade in a car with negative equity, the remaining loan balance typically gets rolled into the loan for the car you’re buying. This effectively carries the old debt into the next vehicle purchase.

The average monthly payment for buyers who rolled negative equity into a new loan reached $916 in the fourth quarter of 2025, according to Edmunds. That’s a record high, and $144 more than the average monthly payment of $772 for all new-car purchases.

During the pandemic, trade-ins with negative equity dropped. In 2022, the yearly share was 16%, according to J.D. Power. After that, it started rising and hasn’t stopped.

“The data show the supply chain crisis, which drove up trade values, was a low point for negative equity,” Jominy said. “It makes sense. When there were fewer new vehicles available to buy, there were fewer consumers coming back to market with trades, which pushed up [used car] values beyond organic demand for the sector.” 

The average price of a new car in February was $49,353, according to Kelley Blue Book’s latest data. That’s about 30.3% higher than in February 2020, when the average price was $37,876.

On average, the age range of trade-ins with negative equity is 3 to 4 years old, according to Edmunds — “which means these are vehicles that were purchased between 2022 and 2023, a truly anomalous period in the market where it wasn’t uncommon to pay over the sticker price,” Yoon said.

As vehicles have become more expensive, “buyers finance a larger portion of the purchase and extend loan terms to afford the payments,” said certified financial planner Stephen Kates, a financial analyst for Bankrate.

“Longer loans translate to … a greater chance that the value of the car falls below what is owed,” Kates said.

Among new-car purchases involving negative equity, 40.7% are now financed with 84-month loans, according to Edmunds data.

“Whether this growth in negative equity leads to future economic ramifications for buyers, both in instance and amount, remains to be seen,” Yoon said.

Roughly 1.5% of auto loans are at least 60 days past due, according to a recent report from TransUnion. That’s on par with the fourth quarter of 2019, when the share was also 1.5%.