Car Buyers Drown in Negative Equity as 29.3% of Trade-Ins Go Underwater

Car buyers are sliding into a debt trap that’s getting harder to escape. Edmunds reports that 29.3% of trade-ins in Q4 2025 had negative equity — the highest share since Q1 2021. Many of these vehicles were bought during pandemic-era chip shortages at above MSRP with limited lease options, leaving balances that fell faster than the car’s value.

• The gap reached a record $7.2K, with over a quarter of drivers owing $10K+ more than their cars are worth — forcing them to pay cash upfront or roll the shortfall into their next loan and dig deeper.
• Buyers who rolled negative equity into a new loan borrowed $11.45K more on average, pushing payments to a record $916 versus the industry average of $772.

Breaking the cycle: Ivan Drury at Edmunds says deals should improve this year, but warns many cars already in driveways are still losing value. Financial experts recommend keeping your car longer, making extra payments when you can, and selling privately instead of trading in to get more value. NFCC’s Bruce McClary also cautioned that rollover loans can “cut further into the amount of available money” each month. If you’re stuck in the negative equity loop, leasing may be the cleanest exit.