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undefined | Nearly 1 in 3 car buyers are underwater on trade-ins — analyst calls dollar amount 'troubling'

Nearly one‑third of recent car buyers are now “underwater” on their trade‑ins, meaning they owe more than the vehicle is worth. According to J.D. Power’s March automotive forecast, 30.5 % of purchasers who traded in a car carried negative equity in the fourth quarter of 2025, up 4.2 percentage points from a year earlier. Edmund Edmunds reported that the average amount owed on these underwater trade‑ins hit an all‑time high of $7,214, with 27 % of the cases carrying $10,000 or more in negative equity. While the share of underwater buyers has risen steadily since 2022, it remains slightly below the pre‑pandemic peak of 33.6 % recorded in 2019, suggesting a “mean‑reversion” trend noted by J.D. Power senior vice president Tyson Jominy.

The surge in negative equity coincides with sharply higher vehicle prices. Kelley Blue Book data show the average new‑car price in February 2025 was $49,353, a 30.3 % increase from $37,876 in February 2020. As buyers finance larger portions of these more expensive purchases, loan terms are extending: 40.7 % of new‑car purchases involving negative equity were financed with 84‑month loans, according to Edmunds. When a trade‑in with negative equity is rolled into a new loan, the average monthly payment rose to $916 in Q4 2025—a record high and $144 above the overall new‑car average payment of $772.

These dynamics raise concerns about future financial stress for consumers. Longer loan terms increase the likelihood that a vehicle’s value will fall below the loan balance, a risk highlighted by certified financial planner Stephen Kates of Bankrate. Still, the broader auto‑loan market appears relatively stable; roughly 1.5 % of auto loans were at least 60 days past due in the fourth quarter, matching levels seen in 2019. Analysts continue to monitor whether the growing pool of negative‑equity trade‑ins could translate into wider economic repercussions as vehicle prices remain elevated and financing terms stay stretched.