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

[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.