More than 1 in 4 used vehicles traded in for new cars in the third quarter of 2025 had negative equity, marking a four-year high. Americans with underwater car loans owe a record average of $6,905, up from $4,200 in 2021. Nearly 6.5% of subprime auto loans are 60 days past due.

As buyers trade in vehicles with negative equity, they end up with new car payments that are $907 on average, compared to the industry average of $767. Edmunds found that trade-in buyers with negative equity financed $11,164 more than the typical new car buyer. Motorists with negative equity often buy more expensive cars than planned.

Car loans are growing longer, with 7-year loans making up 22.4% of all new vehicle financing, an all-time high. Longer loan terms mean lower monthly payments but more interest paid over the life of the loan. Rolling negative equity into a new loan is costly, resulting in larger payments.

To resurface from an underwater car loan, experts recommend paying down the loan faster, rounding up monthly payments, and refinancing at lower rates. Keeping the car and making payments can eventually melt away negative equity. Car values are decreasing, making it challenging for buyers with underwater loans.

Read more at Yahoo Finance.: Americans are falling behind on car loans. Here’s how to catch up.