Car Debt Grows Deeper as Loan Terms Stretch Wider

• More than 3 in 10 Americans trading in a vehicle today owe more on their loan than their car is worth.
• The average underwater trade-in now carries $7,183 in negative equity, the highest ever for a Q1 and second-highest quarter on record. 
• The average new-vehicle monthly payment for a buyer rolling negative equity into their new loan is $932, $159 more than the typical car buyer.

Viewed together, a rising share of affected consumers and larger loan balances among them suggest that negative equity is becoming a more persistent affordability challenge in the trade-in cycle. 

Longer loan terms are leaving car buyers further behind on their equity

A key factor behind these joint trend lines is the growing mismatch between how quickly vehicles lose value and how slowly borrowers build equity in their vehicles. Vehicles typically depreciate most rapidly in the early years of ownership. As loan term lengths increase on average, the pace at which consumers make progress paying down their balance slows. If consumers then trade in their vehicle too soon for any reason, they are increasingly left holding more loan debt.

In Q1, 90.2% of new loans involving trade-ins with negative equity carried terms of at least 72 months, and 43% extended to 84 months. The average term on these loans with rollover debt was 77.4 months, compared with 70.3 months for all new-vehicle loans. At the same time, the average APR for these underwater borrowers was 7.9% in Q1, compared with 6.9% for the market at large. These longer and more expensive loan terms can help keep monthly payments within reach, but they also stretch out the time it takes for consumers to build equity in their vehicles.

It's no longer just early trade-ins facing negative equity

Consumers underwater on their loans are holding onto their vehicles slightly longer, but that additional time is not always enough to offset the debt. 

The average age of a trade-in with negative equity reached 4.3 years, the highest on record, meaning consumers are holding on longer but still can't outrun their debt. Many of these vehicles were purchased during the pandemic-era period at elevated prices, and no amount of extra time or longer vehicle ownership cycles have been enough to close the gap.

These larger negative equity rollovers are becoming more common

In Q1, more than one in four negative equity cases (26%) involved over $10,000 rolled into the new loan, with nearly one in 10 (9.3%) exceeding $15,000. At those levels, negative equity becomes more than a temporary imbalance — it directly increases both the amount financed and the overall cost of the next vehicle purchase.

The downstream effects of negative equity are visible across the transaction. Q1 buyers with negative equity financed an average of $55,970, or $12,071 more than the typical new-vehicle buyer, while also contributing less up front at trade-in. 

Viewing these high borrowing costs through a monthly lens, monthly payments for buyers with negative equity averaged $932, the highest on record and $159 above the market average. And over the life of the loan, they are expected to pay $15,663 in interest, compared with $9,592 for the broader market.

High loan balances are leading to a stronger cycle of negative equity

This creates a reinforcing cycle. Higher loan balances lead to higher monthly payments, which often require longer repayment periods. Those longer terms slow the pace at which consumers build equity, increasing the likelihood that some portion of the balance is carried into the next vehicle purchase.

Negative equity doesn’t just reflect past purchasing decisions; it also shapes the next one. It can limit trade-in flexibility, reduce access to lower-priced vehicles under lending constraints, and narrow the choices available to consumers when they return to market. For some shoppers, replacing a vehicle becomes less about timing or preference and more about what is financially feasible within the remaining loan balance.

Edmunds says

Many consumers who rolled debt into their last purchase are now finding there is no easy exit as they've been carrying the cost of pandemic-era prices into an already expensive market. Until vehicle values, loan terms and higher borrowing costs align, negative equity will continue to define the trade-in experience for a significant share of car buyers.