Buyers Trading in Vehicles With Negative Equity Face Record Monthly Payments: Edmunds

The number of automobile owners trading in vehicles with negative equity continues to rise, with 29.6 percent of trade-ins in the second quarter showing more money owed on existing auto loans than the vehicles were worth, according to automotive insights platform Edmunds’s July 16 vehicle transaction report.Negative equity also pushed average monthly payments on “underwater” trade-ins to $944 in the quarter, the highest figure on record, the report said.That’s $167 more per month than trade-ins without negative equity considerations, and those higher loans are expected to account for an additional $16,270 in interest paid over the loan term—another record high that’s nearly $6,500 more than the average new-vehicle loan issued during the quarter.“Consumers are incurring more debt than ever when trading in vehicles that are underwater,” said Jessica Caldwell, head of insights at Edmunds.“Buyers who financed at 2022’s peak prices are starting to come back to trade in, and they’re bringing thousands of dollars in old debt with them. With interest rates still elevated, this is creating a costly snowball effect for consumers.”It’s the highest number of underwater trade-ins recorded in the second quarter since 2020, Edmunds researchers noted. Trade-ins with negative equity eased slightly from the first quarter, when they tallied 30.9 percent, but they were up 3 percent from the second quarter of 2025.The average amount of negative equity—$6,884—was a record high for the second quarter of any year, though it pulled back from the $7,183 notched in the first quarter, Edmunds researchers noted.As buyers roll over negative equity into new auto loans, the principal amount owed on their new vehicles swells, Caldwell added. Buyers often rely on longer-term loans to lower their monthly payments, but that coping mechanism only results in a larger total interest paid over the life of the loan.Paying down negative equity also lengthens the time it takes for automobile owners to reach positive equity in their vehicles, or the financial position where their car is worth more than the principal amount owed, the Federal Trade Commission’s (FTC) consumer advice portal noted.It’s important for consumers to know their equity position in a vehicle before trading it in, the FTC added. Equally important, the FTC said, is to closely examine new automobile contracts for the amount of negative equity that may be rolled into new loans before signing documents at dealerships.Negative equity positions have been on the rise since 2022, Edmunds said, when high used-vehicle prices caused by a global shortage of computer chips buffered consumers from rolling over debt from one vehicle to the next.However, as vehicle prices normalized, more vehicle owners found themselves underwater on their loans as they attempted to upgrade their cars through new-vehicle purchases.Vehicles with model years 2020 or newer showing the most negative equity include Toyota Tundra (-$8,929), GMC Sierra 1500 (-$8,566), Chevrolet Silverado 1500 (-$8,516), and Ram 1500 (-$,8347). However, Edmunds also lists a handful of sedans and sport utility vehicles with negative equity of $5,000 or more, including the Kia Sportage, Honda Accord, Toyota RAV4, Jeep Grand Cherokee, Nissan Rogue, and many others.Often, negative equity is more about onerous financing structures than vehicle depreciation, said Ivan Drury, director of insights at Edmunds.“Some of the biggest dollar losses we’re seeing are on trucks and sedans that traditionally hold their value better than most,” Drury said.“When historically safe residual value bets are showing up underwater, it’s clear this is a financing problem, not always a vehicle choice problem. These examples are a harsh reminder that a great vehicle choice can still be completely undermined by a punishing loan structure.”