Why more car owners are ‘upside down’ on their loans

Core Insights - A significant number of car owners are currently underwater on their auto loans, meaning they owe more than their vehicles are worth [1][2] - The percentage of underwater trade-ins for new vehicles has reached 26.6% in Q2 2025, an increase from 26.1% in Q1 2025 and 23.9% in Q2 2024, marking the highest level since Q1 2021 [1] - The average amount owed by Americans with upside-down car loans has risen to $6,754 in Q2 2025, up from $6,255 in the same period last year, although it is slightly lower than the $6,880 recorded in Q1 2025 [2] Industry Trends - Affordability pressures are increasing due to elevated vehicle prices and higher interest rates, exacerbating the negative impact of early trade-ins or rolling debt into new loans [2][3] - The introduction of a tax deduction for vehicle loan interest, applicable to new vehicles assembled in the U.S., may not significantly alleviate the financial burden caused by higher interest rates [4]