Negative equity in old cars being traded in for new cars is at an all-time high. According to a new study from Edmunds, 24.2 percent of trade-ins have negative equity, and the average amount of the negative equity on those car loans is $6,458. Looking back on the same study from previous years, this follows a huge jump from a $4,894 average to $5,808 from 2022 to 2023.
The share of drivers whose trade-ins have negative equity is up, but it’s not at an all-time high. It’s risen from 18.5 to 24.2 percent since last year, but that number was over 30 percent in 2019 and 2020. The average trade-in age is tied for the all-time high since this study was conducted: 3.6 years.
| Year | Share of New Vehicles Purchased with a Trade-in | Share of Trade-ins with Negative Equity | Average Amount of Negative Equity | Average Trade-in Age (Years) |
|---|---|---|---|---|
| 2024 | 43.2% | 24.2% | $6,458 | 3.6 |
| 2023 | 44.4% | 18.5% | $5,808 | 3.2 |
| 2022 | 45.2% | 15.5% | $4,894 | 2.9 |
| 2021 | 48.6% | 19.4% | $4,200 | 3.2 |
| 2020 | 48.3% | 31.6% | $4,964 | 3.5 |
| 2019 | 45.9% | 34% | $5,251 | 3.6 |
In addition to the average dollar amount of negative equity going up, there’s an alarming rise in borrowers with negative equity on their car loans of $10,000 or more. Of consumers with negative equity on a car loan, 22 percent of them are underwater by $10k or more, and 7.5 percent of them owe $15,000 or more than their car is worth.
“Consumers owing a grand or two more than their cars are worth isn’t the end of the world, but seeing such a notable share of individuals affected at the $10,000 or even $15,000 level is nothing short of alarming,” Edmunds head of insights Jessica Caldwell said. “A combination of uncontrollable market factors and misguided consumer financial decisions are contributing to the rise of this troubling trend.”
So, why is the negative equity problem getting worse? “On the market factor side, many consumers who purchased new vehicles during the inventory crunch of 2021-2022 paid over MSRP, so they didn’t chip away at the principle of their loans in a traditional manner. On top of that, trade-in values for near-new vehicles are taking a hit as automakers reintroduce incentives,” Caldwell continued. Additionally, “on the consumer behavior side, car shoppers have been increasingly opting into longer loan terms to reduce monthly payments, and they’re also trading in their vehicles earlier than is financially prudent.”
As for which segments are most affected, 19.5 percent of midsize SUVs, 17.3 percent of compact SUVs, and 10.3 percent of full-size trucks are traded in with negative equity. “It’s easy to assume that only specific consumers trading in higher-ticket luxury vehicles are the ones underwater on their car loans, but the reality is that this is a problem across the board,” Edmunds director of insights Ivan Drury said.
The advice that the experts and Edmunds give for avoiding negative equity is fairly obvious. Avoid long loan terms, keep up with regular maintenance to avoid bigger dips in value, and hold on to your car longer. Of course, the surest way to avoid negative equity is to buy cars with cold, hard cash.
Comments
Why the f*** are buyers trading in 3 year-old vehicles to begin with? ESPECIALLY if they’re upside-down. Oh, the monumental stupidity. Just gets worse and worse.
Do be upset when salespeople quickly ask what your payoff is. If you’re $10,000 upside down and no cash to put down. I’m not wasting my time. Nothing personal, it’s just business.
“Don’t “ be upset
This was so predictable. Many here have been saying this for years. The ‘gotta have it now’ mentality enables so many bad financial decisions.
25 years ago, I leased a couple an Altima. They would have a new vehicle for 36 months. They knew, they had negative equity going in. The good part about the lease was they could start fresh in 36 months with no negative equity. 10 months later they came to me wanting a new Blazer. I told them, they would bury themselves. Don’t do it. They finally agreed. It would be foolish to trade for the Blazer. Two weeks later, I saw them driving a new Explorer. I learned a lesson that day. Don’t counsel. Shut up and sell!
Saw this coming from miles away. Prices have been inflating out of control the past 4 years with some vehicles increasing as much as 15K! When people stop paying whatever these manufactures demand for these vehicles only then will prices go back down some
Granted, many buyers are impulsive, and many make poor financial decisions across the board during the course of their lives. Vehicle purchases are at the top of that list. That said, car manufacturers and unions are killing consumers with overpriced products that exceed the cost of homes in parts of the US. The EV debacle is crushing the industry. Washington has a long history of having little or no knowledge of what’s good for the industry and the country at large.
Where can I buy a house for the price of a car? And, if a car costs as much as a house I’m sure that whoever is buying that car is most likely able to afford it. No WalMart employee is going $80K in debt on a Tahoe. This has nothing to do with EV’s or Washington, this is nothing more than idiots being idiots and unscrupulous dealerships and loan companies signing people up for loans they know they can’t afford. This is the fabled Free Market that people whisper about where people are free to make stupid decision that we don’t like and for businesses to take advantage of that. It’s not cool, but it’s Capitalism.
You obviously don’t know much about America and /or it’s people and the real estate in their towns and cities. Maybe you reside in a rich community or aren’t well traveled. Right now, there are homes in various markets ( I feel it would be in bad taste to point them out) but just play with Zillow or Realtor.com awhile and you’ll find them. For the sake of argument, GM offers Cadillac, Chevrolet, GMC models right now that blow past $100K and even some equal or surpass $150K.
Why blame the dealer and/or the loan companies???? If you’re not smart enough to do your homework don’t blame the dealers and if you can’t figure out on your own how much you can afford then that’s your own fault.
As the above other comments (mostly) have said, I will agree with that. When the pandemic hit and then the micro chip issues, we saw the greedy dealers pump the prices way up. What’s worse is that people freaked out and were paying those stupid prices! I’m sorry, but the pinnacle of stupidity is someone paying 10 grand OVER MSRP for a Toyota! Any Toyota. Yes, the used car market was strong for about 2 years which gave these people the false sense of security and made them think it was ok to “invest” such stupid money into a car. And yet, we all knew deep down inside that the high used car price bubble would burst sooner than later. And then???
That’s when you have the same idiots who paid 10 grand over MSRP for a Toyota or 5 grand over for a Honda or 3 grand over for a Mazda or Chevy or Ford (and the list goes on), they are at the point of normal trade cycles and that same 10 grand they paid over has been turned into negative equity. And let’s not forget the tax paid on the extra money over MSRP as well as the higher interest paid on it. It’s like a trifecta of dumb.
Sure might change the minds of the GM management if they all had to drive EVs especially in the winter with no trailing vehicles to secure a spot at the charging station ahead of them! We already know that it didn’t work out so well when they sent out vehicle with management in it was a disaster! Dealerships have been telling their plants to stop sending them EVs until requested for months now! Tomg
You won’t see GM district managers, zone managers, or GM Financial reps driving EV’s. I’ve asked them why. They don’t want to be on the road charging! Imagine that. I’m sure Mary would be happy to pay them while they are charging.
This is disturbing, but not surprising with the price of vehicles and the length of time financing now goes for. I am showing my age, but when I started buying new cars in the late 70’s the loans were for 36 months no longer. Then they went to 48 months, 60 months, 72 months and maybe even longer now. Vehicles today have much better quality than in the past, so they will last longer with proper maintenance, but really with the price and 7 plus years of financing you will go deep into debt. I have been a car enthusiast for my entire adult life, but I am not buying a $100,000 SUV and financing it for 7 years or more. Clearly these buyers do not have the money they just sign on dotted line!
Truly in the same boat as you. The cars last longer but the desire remains to have a newer more reliable car. No one gets to 130k miles and thinks, lets take a 2000 mile trip. The car will probably make it but with the large number of components something may pick your trip to fail.
Showing my age. Used to be you couldn’t finance a vehicle for more than 24 months.
If it was still that way, we would all be better off.
These are obviously people with good to excellent credit doing these trades.
The ones with shaky credit are being told to pound sand, come back when credit is loosened up again or your negative equity is resolved.
It’s what I call the Fry Phenomenon.
People telling businesses to shut up and take their money. Whether they have it to spend or not.
THIS was the real cause of inflation.
Of course companies and businesses raised their prices with people paying anything.
If I had a business, I would have done that.
I usually buy a new vehicle every 5 or so years but I keep them for about 15 years. Right now I have a 19 Equinox, a 12 Silverado, and an 09 Pontiac G-6. All paid for and all in very good condition. I do the regular maintenance myself and none have needed any major repairs. Take care of them and they will take care of you.
With the price of cars and houses it’s unreal. There once was twenty year mortgages, too.
About 6 months after we made our purchase (paid cash-planned & saved for retirement gift to ourselves), have been getting emails wanting us to come in & have our vehicle appraised & upgrade to a new model! They’ve got to be crazy, or there must be lots of gullible people out there to fall for these deals.