Record High Auto Debt: Americans Are More Upside Down on Car Loans Than Ever
Americans are more upside down on car loans than ever, according to new data from Edmunds, with the average negative equity hitting a record high of $6,905. This financial strain is compounded by nearly one-third of all new car trade-ins being underwater, forcing buyers to carry substantial debt into their next purchase. The troubling trend suggests many consumers are still grappling with the financial consequences of high prices and long, expensive loans taken during the post-pandemic car market frenzy.
The Record Amount of Negative Equity
The third quarter of 2025 marked a significant peak in auto debt for consumers trading in vehicles.
- Average Negative Equity: The average amount owed on an “upside-down” car loan is a record $6,905.
- Highest Trade-In Debt: 28.1% of all trade-ins toward new car purchases had negative equity in Q3 2025, the highest level in over four years.
- Extreme Debt: Nearly one in four of those underwater trade-ins carried more than $10,000 in debt, with 8.3% carrying more than $15,000.
The Catch-Up: Rolling Debt into New Loans
Rolling old debt into new car loans significantly increases monthly payments and the total amount financed.
- Higher Monthly Payments: Buyers with negative equity paid an average monthly payment of $907—significantly higher than the overall industry average of $767.
- Higher Loan Amounts: These buyers financed about $11,000 more than the typical new-vehicle buyer.
- The Cause: Ivan Drury, Edmunds’ director of insights, noted this debt “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”.
What Owners Can Do to Stop Sinking Further
Experts stress that there is no easy way out of negative equity, but consumers can take prudent steps to prevent the problem from worsening.
- Patience is Key: Experts advise owners to wait until they’ve paid down more of their balance before trading in. Slowing down and paying off what’s owed can stop buyers from sinking further underwater.
- Budgeting: If a replacement is necessary, ensure the next purchase “fits your budget, not just your needs” to prevent a short-term decision from becoming a “long-term setback”.
- Review Paperwork: Reviewing loan paperwork before trading in and canceling add-on products (like extended warranties) can sometimes result in a small refund to reduce the outstanding balance.
Final Thoughts
The fact that nearly a third of new car buyers are entering their next purchase burdened by old debt highlights a deep and sustained financial strain in the American auto market. With high car prices and stubbornly high interest rates, many buyers can no longer pay off their loans before trading in, making it critical for consumers to resist the urge to trade in too soon.
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