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As customers take care of greater auto funds, new knowledge from automotive web site Edmunds suggests they might be falling right into a cycle of damaging fairness — the place their excellent auto mortgage balances are greater than the worth of their automobiles.
Within the fourth quarter of 2025, 29.3% of trade-ins towards new automotive purchases had been “underwater,” or had damaging fairness, based on Edmunds. That’s the highest share because the first quarter of 2021, when 31.9% of trade-ins had damaging fairness, based on the info.
The typical quantity owed on trade-ins with damaging fairness rose to $7,214 — an all-time excessive, based on Edmunds. Multiple-quarter of trade-ins had greater than $10,000 in damaging fairness — additionally a report excessive.
Drivers buying and selling in a automotive with damaging fairness usually must provide you with money to pay that steadiness, or roll the debt into their new mortgage.
Different latest Edmunds knowledge exhibits extra drivers are taking over $1,000-plus month-to-month auto mortgage funds for each new and used automobiles.
How drivers find yourself underwater on automotive loans
Consultants say automobiles which might be underwater trade-ins at present had been possible bought when pandemic-era chip shortages made it extra possible that customers had been paying above the producer’s prompt retail worth, or MSRP. In the meantime, a scarcity of lease choices at the moment could have prompted customers to buy new automobiles as a substitute, and face excessive mortgage balances in the event that they decide to commerce them in.
In the present day’s automotive consumers usually tend to get offers nearer to MSRP.
“There’s some hope within the sense that persons are going to get higher offers going ahead for 2026 on their new automotive buy,” mentioned Ivan Drury, director of insights at Edmunds.
“However the issue is that for the car of their driveway, a number of automobiles are shedding worth,” Drury mentioned.
Shoppers could in any other case find yourself underwater on their automotive loans — even when they’ve been making funds for years — for a wide range of causes, based on Drury. These can embody getting a better annual share fee on a mortgage, choosing an extended mortgage time period size or shopping for a car with a nasty resale worth.
Having damaging fairness in a automotive just isn’t solely costly, however it will possibly additionally turn out to be a cycle that is tough to interrupt.
Consumers with damaging fairness financed $11,453 extra on common than different new car consumers, based on Edmunds’ knowledge.
Consumers who rolled damaging fairness of their new loans had a median month-to-month fee of $916 within the fourth quarter — a report excessive — versus the $772 common business month-to-month fee, based on Edmunds.
To decrease these month-to-month funds, automotive consumers with damaging fairness could decide to stretch the size of their loans. About 40.7% of recent automotive purchases with damaging fairness had been financed with 84-month loans, Edmunds’ knowledge exhibits. However doing so continues the danger of being underwater, since early funds principally cowl curiosity, and you are not making a lot headway on the principal.
What to do in case you have damaging fairness in your automotive
In case you are underwater in your automotive mortgage, you first need to attempt to maintain your automotive for longer, if doable, mentioned Bruce McClary, senior vice chairman on the Nationwide Basis for Credit score Counseling.
Even when you begin out owing extra on the automotive than it is value, after years of funds, depreciation in your automotive will sluggish and also you might be able to attain a degree the place your mortgage steadiness drops beneath the car’s worth, McClary mentioned.
It additionally helps to pay greater than the minimal month-to-month fee or to make further funds when you can, although not everybody might be able to do this, he mentioned.
Should you do commerce in your present automotive for a brand new one, attempt to keep away from a rollover supply, the place the unpaid steadiness in your previous automotive goes into the brand new automotive mortgage, McClary mentioned — it will possibly spike your new month-to-month fee.
“That simply cuts additional into the quantity of obtainable cash that you’ve in your price range every month,” he mentioned.
As a substitute, attempt to promote your previous automotive by yourself quite than buying and selling it in on the vendor, McClary mentioned. Typically, you will get extra in your automotive by means of a non-public sale, which may also help you repay extra of your mortgage, he mentioned.
You should definitely contemplate all your choices when promoting your automotive, Drury mentioned, as one dealership that wants the car could supply to pay extra.
“Store it round,” Drury mentioned — particularly if it is only a smaller distinction, like $1,500, between optimistic and damaging fairness in your trade-in.
When you’ve got damaging fairness, your automotive vendor could counsel you buy assured asset safety, or GAP, insurance coverage to cowl the distinction between your complete auto mortgage and your automotive’s worth. Should you do determine to buy GAP insurance coverage, store round for one of the best charges, McClary mentioned.
Oftentimes, you should purchase GAP insurance coverage by means of your current auto insurance coverage supplier at a “considerably extra inexpensive” worth than when you went by means of an auto vendor, based on McClary.
Consumers’ financing choices could also be restricted — or probably even denied by a financial institution altogether — primarily based on their loan-to-value ratio between the automotive they presently have and the one they aspire to purchase, Drury mentioned.
Because the automobiles traded in with damaging fairness are trending older, it might be time to rethink your possession cycle, significantly when you’re signing up for longer loans every time, he mentioned.
Should you’ve made it a behavior of buying and selling your automotive when your fairness is damaging and it is your second or third time doing so, you could need to contemplate leasing as a substitute, Drury mentioned.
