Americans are underwater on car loans. They're buying new cars anyway.

Core Insights - A significant increase in the number of Americans trading in vehicles with negative equity has been observed, with 28.1% of trade-ins in Q3 2025 being underwater, marking a four-year high [1][2] Trade-In Trends - The average negative equity for Americans with underwater car loans reached a record $6,905 in Q3 2025, up from $4,200 in the same period of 2021 [2] - Among those trading in vehicles with negative equity, one in three owed more than $5,000, and roughly one in four owed over $10,000, both figures being record highs [2] Consumer Behavior - Many motorists are opting to trade in their vehicles with negative equity rather than waiting to pay down their loans, indicating a trend towards immediate gratification in vehicle ownership [3] - The average age of trade-ins with negative equity is reported to be 3.7 years [5] Financial Environment - The average interest rate on a 60-month new car loan was 7.6% in August 2025, a significant increase from 4.6% four years prior, contributing to the financial strain on consumers [4] - Used vehicle prices have decreased by approximately 15% from early 2022 to August 2025, further complicating the financial landscape for car buyers [4] Loan Dynamics - The trend of longer car loans is increasing, with seven-year loans comprising 22.4% of all new vehicle financing in Q2 2025, an all-time high [7] - Rolling negative equity into a new car loan results in higher average payments, with trade-in buyers with negative equity averaging $907 compared to the industry average of $767 [9] Recommendations for Consumers - Experts suggest that consumers can mitigate negative equity by making larger payments, refinancing for lower rates, or simply holding onto their vehicles until the loan balance is paid down [16][17][19]