Car buyers facing financial challenges as 26% of new-vehicle trade-ins in Q2 2025 had negative equity, the highest in over four years. Average amount owed on upside-down loans is $6,754. Affordability pressures from high prices and interest rates worsen the situation, says Edmunds’ director of insights Ivan Drury.

To avoid negative equity, hold onto your current vehicle longer to decrease loan balance and vehicle depreciation. Edmunds data shows buyers with negative equity paid an average $915 per month, financing $12,145 more than typical new-vehicle buyers. Patience and discipline are key to avoiding further financial strain.

Refinancing or leasing can help soften the blow of negative equity. Leasing allows you to pay off current vehicle’s negative equity along with new vehicle’s lease payments. Refinancing with lower interest rates may reduce monthly payments and buy time to catch up. Prevention is the best solution, buy used to avoid immediate depreciation.

Make a larger down payment, aim for at least 20%, to help loan balance shrink quicker than the car’s value. Avoid ultra-long loan terms to prevent being upside down longer. Edmunds advises buying smart, making a solid down payment, and avoiding overly long loans to escape negative equity.

Read more at Yahoo Finance: What to do if you’re underwater on your car loan