1 in 4 new car trade-ins are ‘underwater,’ marking a 4-year high — here’s how to avoid drowning in auto loans

Core Insights - A growing share of car owners are underwater on their auto loans, with 26.6% of trade-ins having negative equity in Q2 2025, up from 26.1% in Q1 2025 and 23.9% in Q2 2024, marking the highest level in four years [2][3] Group 1: Negative Equity Trends - The increase in negative equity indicates that more individuals are carrying additional debt into new car purchases, which raises the risk of being underwater on future purchases [2][3] - The average amount owed on underwater auto loans in Q2 2025 was $6,754, with 32.6% of underwater trade-ins having between $5,000 and $10,000 in negative equity, compared to 30.2% in Q2 2024 [5] Group 2: Economic Factors - Affordability pressures, including high vehicle prices and increased interest rates, are exacerbating the negative effects of trading in vehicles too early or rolling debt into new loans [3] - The current economic climate makes it more challenging for buyers to manage their loans, as new loans come with significantly higher interest rates than those from previous years [3]