'Underwater' car trade-ins are at a 4-year high: What that means when buying a new vehicle

[Yo_Mama_Been_Loggin]

More drivers across the country are "underwater" or "upside down" on their auto loans — meaning they owe more money than the car is worth. That's costing them when it comes time to buy a new car.

About 26.6% of trade-ins toward new car purchases had negative equity in the second quarter of 2025, according to Edmunds, an auto site. That figure is up slightly from 26.1% in the first quarter of the year, and the highest it's been in the last four years, said Ivan Drury, the director of insights at Edmunds.

Such drivers are not underwater by insignificant amounts. The average amount owed on upside-down loans in the second quarter was $6,754, down slightly from the prior quarter's $6,880, Edmunds found.

"It's a staggering figure to look at," said Drury.

https://www.msn.com/en-us/money/markets/underwater-car-trade-ins-are-at-a-4-year-high-what-that-means-when-buying-a-new-vehicle/ar-AA1Mx6YI

Because of higher auto prices there are loans that take as long as seven years to pay back. Not surprising many vehicles are underwater.

[Johnny2X2X]

1. I just don't understand how people can afford new cars

I am doing fairly well, household income that puts us in the top 10% easily, I just don't understand paying $several hundred a month for a new car. After my mortgage, 401K, insurance, utilities, and other expenses, there's just not enough money left over for a $600 car payment, much less 2 $600 car payments like a lot of families have.

I buy used, low miles. I keep my car as long as it's practical. I haven't had a car payment in years. I get how nice new cars are, but my budget just doesn't allow me to waste that much money when I can save and pay cash for lightly used.

[DemocratSinceBirth]

2. I have a 2019 Kia Optima

It has AC and Android Auto, and that's all I need. I don't know what folks do without either of them.

[Johnny2X2X]

4. Rear view camera and cruise control

Basically all I need with A/C and phone interface.

My cars are fine, well maintained and good on gas. Reliable.

I just never saw the logic in spending so big a portion of my take home pay non a new car. And that's the thing about it, i know people making $50K a year with a $500 a month car payment.

[DemocratSinceBirth]

5. I have rear view camera and cruise control, but in CA you really need adaptive cruise control.

It's crazy to talk about equity in a car, but I have equity in mine.

[MichMan]

10. I know lots of people making $50k per year with $500 a month car payments

For one thing, they are blue collar and have no student loan obligations.

[RandomNumbers]

7. No Android Auto

I have this crazy old technology thing called a CD player. It's great

Oh and then there's this thing called the radio. For driving locally it's amazing. It gets annoying when I go on a trip and stations fade out though, and I have to keep retuning and trying to find something listenable.

[DemocratSinceBirth]

11. I spend eighteen or so hours in a week in my car

Android Auto is fantastic. I live in Woodland Hills, CA. I just said, "Hey Google, let's go to Citi Field." It instantly gave me directions.

[Ferrets are Cool]

3. I just bought a fantastic 2013 Outback with 128K miles at a great price.

Buying a new car is nothing but a vanity purchase that very few can afford.

[MineralMan]

9. Well, maybe not.

What I refuse to do is pay interest on a loan for a car. If I did that, I'd be paying far more than even the sticker price by the time the loan is paid off. Why would I do that? I have always bought cars for cash. I started off buying cars for $100 in the 1960s. I bought them, cleaned them up nicely, drove them, and then sold them for $3-400. Over time, I paid more for newer cars, funded in part by all the older cars I had purchased and then later sold for more than I paid.

In 2012, I bought my very first brand new car. It was, at that time, the least expensive new car you could buy. A base trim KIA Soul. I paid cash for it. I never made any payments. In 2019, I replaced it with a 2020 KIA Soul. At that time, I paid about the same as I did for the 2013 one I bought in 2012. Again, a base trim model. Again, I paid cash. I still have it. I also bought a 2021 Chevy Trax in 2021, the cheapest AWD compact SUV on the market at that time. I still have that car, as well, so my wife and I each have a good car to drive. Paid cash for the Trax, too.

No interest on a depreciating vehicle. I don't pay interest on depreciating things. I pay cash or don't buy the thing. I bought used cars until I could buy new ones. But I refuse to pay interest on a car which loses value every year. I have had mortgages on three houses, but paid those off as well as soon as possible. The last house I bought, though, I paid for in full. No more mortgages. That has always been my goal. I didn't reach it until I was 75 years old, but I did get there.

If you can avoid paying interest on things you own, you will stay ahead. If not, you will always be falling behind eventually.

[DFW]

6. I don't even know what Android Auto is. Never heard of it.

I must confess, I do buy new cars. My wife and I drive them into the ground. Fifteen years on average until the car coroner has to come pick up the body. We don’t do monthly payments, but we are demanding when it comes to what the warranty covers. If that’s not just about everything, we leave the salesman gaping, saying, “but, but, but….”

[mcar]

14. That's what we do as well

We drive our cars until they get up and walk away from us. SO has a 1993 Chevy Lumina that belonged to his mother. It looks a mess but runs perfectly.

My car is a 2016 that's starting to have some issues. We're just starting to look to see if we can get a deal on a 2025 model.

[MichMan]

8. Given that cars will easily last as long as payments, the only reason people would be underwater on trade ins is vanity

and wanting a new ne even though they haven't paid off the last one.

[W_HAMILTON]

13. Wrong.

There are videos about why this happens and it usually is because the monthly payments become too unbearable, so they are trying to get rid of their current car and trade down for a less expensive one, but then they realize that they have no equity in their current vehicle and don't have the money to otherwise make a trade-in work.

This often happens within one or two years after initial purchase, meaning there haven't been enough payments to make up for the initial drop in value when a new car becomes a used car and the monthly interest that is higher in the early years of a loan due to most of the payments going towards accrued interest rather than paying down principal.

[MichMan]

15. That would require even more stupidity than I gave them credit for

With the prices of new cars rising every year, coupled with a rise in interest rates, I doubt there is much savings from trading down once you add the negative equity to the loan. The Loan to value ratios would still need to pass the lender's requirements

I suppose if you traded a two year old Cadillac Escalade on a Mitsubishi Mirage that would work, but doubtful that would account for the 26% that are underwater.

I imagine some people expected the student loan moratorium would last indefinitely and are now facing the reality of having to make those payments again and making their luxury vehicles now unaffordable.

[Greg_In_SF]

12. Millions of people

who bought cars during Covid paid huge dealer markups and they are beginning to realize that was a very big mistake.

[flvegan]

16. Mandatory personal finance course to graduate high school, to start.

I've never understood why every student in the country doesn't get a basic personal finance/economics course prior to graduating high school. Lots of those kids either already have a job, and/or are planning taking on a massive amount of debt (college loans) or maybe both. This course also shouldn't be taught be they default teacher with some extra time (looking at you, head football coach). Rather someone well versed, who isn't going to mention either the Lottery or church.

Now a car, it shouldn't be an emotional purchase (I'll note my own hypocrisy here). "Want" is a terrible word. Buying a brand new car/truck/suv is buying on an immediate, drastic depreciation curve. 25% leaving the lot, and worse for some brands (go check out 1-2 year old used Maseratis sometime). The dealers, who are parasites of the lowest order, will jump on those emotions, tacking on the most bullshit "add-ons" like window etching, door guards, "paint protection", $700 window tint, $500 floor mats, all of which can add up to a few thousand bucks. The loan terms extend beyond the warranty**, so when even minor things go wrong, you can add expensive fixes to your monthly note expenditure. That is, of course, along with regular maintenance like oil changes*, tires, battery, lights, etc. Oh, and get a full insurance quote before shopping for any car, new or used. You might be shocked by the new premium.

Recently, a friend of mine was quoted over $200 at the dealer for two generic wiper blades, installed. I went to the local Autozone, bought a very nice pair for around $40 and installed them for her in 10 minutes. The dealers suck.

All of this plays into the "underwater" trade in.

*Non-EV
**Not that coverage under the terms of the warranty is going to be acknowledged, not without a fight at times.