Even with vehicle prices gradually declining from their 2020 peak, new car owners are still facing hefty loans just to drive off the lot. In fact, more and more new car buyers are finding themselves saddled with underwater loans, meaning they owe more on their vehicles than they’re actually worth – a trend that hit an all-time high during Q4 2024.
According to the latest report from Edmunds, one in four new vehicle trade-ins are underwater. Specifically, 24.9 percent of trade-ins toward new vehicle purchases had negative equity, compared to 24.2 percent in Q3 2024 and 20.4 percent in Q4 2023.
To make matters worse, the average amount owed on underwater loans averaged $6,838 last quarter; one year ago, that figure was $6,054. But a surprising number of car owners owe even more than that on their new vehicles. One in four owners, or 24.6 percent, with negative equity owe over $10,000, up from 22.2 percent in Q3 2024. Some owners – a staggering 8.5 percent – are upside down by more than $15,000, making it even harder to trade in or refinance their vehicles.
“Negative equity isn’t a brand-new phenomenon in the auto lending space – in fact, it wasn’t too long ago when more than a third of trade-ins toward new-car purchases were upside down,” said Jessica Caldwell, Edmunds head of insights. “What’s particularly alarming in the Q4 figures is that a growing share of trade-ins are hitting the double-digit mark in thousands of dollars owed, making the cycle far more challenging for consumers to escape.”
In order to calculate these results, Edmunds examined the difference in cost between car owners who financed a new vehicle involving a trade-in with negative equity in Q4 and the industry average for all financed new vehicles. The study found that owners whose trade-ins had negative equity were burdened with an additional $159 per month on average, equaling $12,388 more in total amount financed than the industrywide average. The publication cautions new car buyers with an existing loan, encouraging them to closely examine the value of their current vehicle before making the jump to a new one.
Comments
I had that situation decades ago. The solution is simple:
1. Keep the vehicle at least ten years after the loan is paid off. Recover your investment.
2. Don’t trade in. Try to sell it yourself.
I did this for all my older vehicles, keeping them for 20 or more years before buying a new one. Then I sold the old vehicles for more than their residual value. Never lost money!
Same here never trade it in to the stealership. Will find its the young and dummer xyz generations in deep water and cant swim.
The following is just an observation. Credit is still too easy to get, as evidenced by increasing debt (upside-down vehicle loans, credit cards, etc.). Stock markets crash when this happens. They crash when the consumers are financially inept or in denial about their finances.
NOTE: I would much rather see the economy continue to improve and the USA become stronger, so I hope my observations are incorrect.