Why more car owners are ‘upside down’ on their loans
A growing number of car owners are finding themselves underwater on their auto loans, according to new data from the auto shopping website Edmunds.com. In short, that means what they owe is larger than what the cars are actually worth.
Edmunds reported that underwater trade-ins are at their highest record since the first quarter of 2021, during the pandemic, when 31.9% of new-car trade-ins were upside down.
The latest data from Edmunds for the second quarter of 2025 revealed that more than 1 in 4 new vehicle trade-ins are underwater. Simply put, that means 26.6% of trade-ins for new cars had negative equity, up from 26.1% in Q1 2025 and 23.9% in Q2 2024.
The most recent data showed many Americans with upside-down car loans owed, on average, $6,754 in Q2 2025—up from $6,255 for the same period last year, but still slightly lower than for the first three months of this year, when it was $6,880.
“Consumers being underwater on their car loans isn’t a new trend, but the stakes are higher than ever in today’s financial landscape,” Ivan Drury, director of insights for Edmunds, said in a statement.
Drury added that “affordability pressures—from elevated vehicle prices to higher interest rates—are compounding the negative effects of decisions like trading in too early or rolling debt into a new loan.
“And as buyers take on new loans with much higher interest rates than those from just a few years ago, even potential tax deductions can’t meaningfully offset the thousands more they’ll pay in interest,” he said.
That tax deduction, which is tucked away in President Donald Trump’s massive 940-page tax bill that was signed into law July 4, allows many people, for the first time, to deduct interest on their vehicle loans; and it is available whether or not taxpayers itemize deductions. However, the vehicles must be new and assembled in the U.S., and the loans issued no sooner than this year.
For more consumer information on underwater car loans, Edmunds offers advice in this guide. Shoppers can also use Edmunds’s appraisal tool to determine their car’s current value.
