NEW YORK — A growing share of Americans trading in vehicles are finding they owe more on their cars than they are worth, adding financial strain to an auto market already pressured by high prices and interest rates, according to a new analysis.
About 30% of borrowers who traded in a vehicle for a new one in the first quarter had negative equity—meaning they owed more on their loan than the car’s value—car-shopping website Edmunds reported. Those borrowers carried an average of roughly $7,200 in debt into their new loans, a 42% increase from five years ago.
“The higher it goes, the chances are that people are never going to get themselves out of the situation,” Jessica Caldwell, head of insights at Edmunds, told the Wall Street Journal.
‘Surge’ in Amount Owed
While roughly a third of trade-ins having negative equity has been common in recent years, the amount owed has surged as consumers attempt to offload vehicles purchased at elevated prices during the COVID-19 pandemic, the Journal reported.
The trend is compounding affordability challenges in the auto market, where higher vehicle prices and elevated borrowing costs have pushed buyers toward longer loan terms. Edmunds data show the average new-car loan stretched to 70 months in the first quarter, with some loans extending beyond eight years. As the CU Daily has previously reported, monthly payments exceeding $1,000 have become increasingly common.
Borrowers rolling negative equity into new loans often face even higher costs over time, as the additional debt is added to the balance of the next vehicle purchase, the Journal noted
Issue Began with Pandemic
The issue traces back to pandemic-era supply disruptions, particularly a global semiconductor shortage that limited new-car inventory and drove up prices. Some dealers charged above sticker price during that period, contributing to higher loan balances, Eric Frehsée, president of the Tamaroff Group in the Detroit area, told the Journal.
In the first quarter of 2026, buyers with negative equity financed nearly $56,000 on average for a new vehicle—about $12,000 more than the typical buyer—resulting in average monthly payments of $932, the highest level on record, according to Edmunds.
The data also highlight a widening divide among consumers. While some borrowers struggle with rising debt, others continue to benefit from strong trade-in values. Average trade-in equity exceeded $6,800 in March, according to J.D. Power, the Journal said.
“The average consumer is in a good position when buying a vehicle,” Tyson Jominy, J.D. Power’s senior vice president of data and analytics, told the Journal.
Greater Financial Risk
Still, borrowers with negative equity face greater financial risk. A 2024 study by the Consumer Financial Protection Bureau found consumers who rolled over debt from a prior auto loan were more than twice as likely to have their vehicle repossessed within two years compared with those who had positive equity.
Auto loan delinquencies are also rising. Default rates in March reached their highest levels since 2010, according to Cox Automotive, the Journal reported.
Industry pressures could intensify further if external factors, such as rising gas prices linked to geopolitical tensions, persist. Caldwell said elevated levels of negative equity are likely to continue, noting that higher borrowing costs have compounded the impact of inflated vehicle prices.
“We know that people paid an increased price either way,” she said. “I don’t think it’s going to go back down.”
