Americans are falling behind on car loans. Here's how to catch up.

Core Insights - The trend of negative equity in car loans is rising, with 28.1% of trade-ins in Q3 2025 having negative equity, marking a four-year high [1][2] - The average amount owed on underwater car loans has increased to $6,905, up from $4,200 in 2021, with significant portions of trade-in owners owing over $5,000 and $10,000 [2] - The increase in negative equity coincides with a rise in late payments on subprime auto loans, reaching a historic high of 6.5% [3] Trade-In Dynamics - Many motorists are opting to trade in their vehicles despite negative equity, driven by a desire for newer models [4] - The average trade-in vehicle with negative equity is 3.7 years old, indicating a trend of early trade-ins [6] - Rolling negative equity into new loans results in higher average payments, with those trading in underwater loans averaging $907 compared to the industry average of $767 [10] Loan Terms and Interest Rates - The average interest rate for a 60-month new car loan has risen to 7.6%, up from 4.6% four years ago, contributing to the financial strain on borrowers [5] - Longer loan terms are becoming more common, with 22.4% of new vehicle financing being seven-year loans, which can lead to higher overall interest payments [8][9] Consumer Behavior and Recommendations - Consumers often end up purchasing more expensive vehicles than initially planned due to negative equity, creating a cycle of debt [11][14] - Experts suggest strategies for managing underwater loans, including making larger payments, refinancing for better rates, or simply continuing to make payments until equity improves [17][18][20]