A recent report indicates that an increasing number of car buyers have vehicle trade-ins with negative equity as rising monthly payments and total financing hit all-time high. The report states that one in four car buyers had vehicle trade-ins that were underwater during the final quarter of the 2024 calendar year.
For those readers who may be unaware, negative equity refers to a situation wherein a given asset is worth less than the remaining loan balance.
Per data reported by Edmunds, 24.9 percent of new vehicle trade-ins were upside down on their loans in the fourth quarter of 2024, a rise from 24.2 percent in the third quarter of 2023, and a major year-over-year increase from 20.4 percent recorded in the fourth quarter of the 2023 calendar year.
The average negative equity amount reached a record-high $6,838 in Q4 of 2024, up from $6,458 in the previous quarter and $6,054 a year prior. Even more concerning, nearly 25 percent of consumers with negative equity owed over $10,000 on their loan, with 8.5 percent owing more than $15,000.
According Edmunds‘ head of insights, Jessica Caldwell, this growing debt burden can trap buyers in a cycle of financial instability. Rolling negative equity into new loans has become a relatively common practice, but it comes with long-term costs. In the fourth quarter of 2024, consumers with negative equity added an average of $159 to their monthly payments and financed $12,388 more than the industry average for all new vehicle loans, both of which mark all-time highs.
To combat this trend, Edmunds advises car buyers to carefully assess their vehicle’s value relative to their loan payoff amount before considering a trade-in. For those deeply underwater, holding onto their vehicle, keeping up with payments, and regular maintenance may be the best course of action in order to avoid further debt.
The average amount of negative equity has increased steadily over the last several years, recorded at $4,147 in Q4 of 2021, $5,353 in Q4 of 2022, $6,054 in Q4 of 2023, and $6,838 in Q4 of 2024.
Comments
This is why the vehicle market can not survive on the path it is going and the prices of vehicles. It’s only a matter of time before it all collapses!! Frankly, I am surprised it’s lasted this long……it won’t last much longer. Especially with interest rates not going down.
I don’t disagree with your point, but I’d like to take it a step further and suggest that consumers also share some of the responsibility. How often do we see people unwilling to stick with their vehicle and see the loan through to completion before deciding to trade it in or sell it outright? These kinds of decisions play a significant role in the broader issue.
Most of this is American consumer fault , we won’t buy normal sized cars for commuting And we need every bell and whistle. I was in construction my whole life and most drove loaded trucks and used them just for commute, same with suvs. They hit high mileage fast and loose most value
Too many people buy vehicles they really can’t afford. They are fooled into extending the loan to make the payments smaller and seem affordable. In reality, the loans are so long that they outlive the the vehicle life for many people. Then they are underwater when they go to trade. Unfortunately, many people are too weak and/or financially educated to make good decisions. Many times these folks have two nice cars with big payments at the expense of retirement savings, college funds, and a general emergency fund. These people will likely never have anything other than their home, which they may have to sell when they retire because they can’t afford the maintenance and taxes. Sad.
You had an article last week saying that a new GMC Sierra Denali can be priced at more than $100,000. Are we surprised at the result?
What happened to keeping your vehicle until it’s paid off? You don’t need a new car every two or three years.
Car dealers hate this one simple trick…
The problem is these days vehicles just don’t last as long as they used to. My 2016 Toyota Rav is well payed off thankfully (payed off in 2019), but at only 90k miles, I am already having transmission issues with it. And this is a well cared for Toyota which had its transmission fluid replaced at 80k miles, a refreshed model (so you’d think they worked the kinks out already), and my specific Rav is a Japanese built model (most of them are Canadian-built but the few Japanese-built ones are considered to be the most reliable ones to have). Even Toyotas (the supposed king of reliability here) have become garbage these days and I have the personal experience to back it up.
Have you ever had the fluid exchanged and the filter replaced?
I said I did replace the transmission fluid no? Or did you mean the engine? And yes. Every 5k miles it gets full oil and filter changed.
You’re right, i must have glossed over that part.
I know im comparing apples and oranges, but i have always owned GM vehicles and changed the fluid and filter every 40k miles and have never have had an issue with my transmissions, even with models which were know for $hitty transmissions like the 4t45e and 4t65e.
Sorry you’re having problems at such low milage. I wouldn’t epect that with any vehicle, esp a Toyota.
Rav is junk I had on , bad bad news
Vehicles last at least twice as long as they did when I started driving in the 1970’s. Most of those cars were mostly worn out at 100k miles. Today’s GM’s will easily go 200k with proper maintenance. Unleaded gasoline, fuel injection, and much better synthetic oils and lubricants keep today’s engines running much longer. Today’s bodies are more corrosion resistant and paints are much better.
Toyota superiority is imaginary, I prefer GMs and have never had the issues you mentioned.
The dealers ripped off a lot of customers in the so called pandemic era. I saw one ford dealer charging 140k for a 90k truck. Talk about upside down! No they will pay for it.
Just Darwin doing his job at this point. You can’t feel bad for these people. Nobody was forced to pay $10k more for a Bronco they didn’t need.
I also had to buy a car during the pandemic and I bought at MSRP with $1k off in GM credit. There was ZERO chance I was going to pay any markup whatsoever. My car could have exploded to pieces and I would have Ubered around and kept my errands short until I found the right deal.
But did they really rip anyone off if they are that stupid to pay 140k…uhum I mean waste their money on it or they are well off enough it does not matter….as opposed to people buying a 35k honda and being charged 5 to 10k more regional increase which is more meaningfull for the every day person.
That’s exactly my view of the situation. Yes dealers are greedy but if the consumer doesn’t show restraint then can you blame the business for extracting a few extra dollars from a willing person? There is a saying that goes “A fool and his money is easily parted.”
Capitalism cuts both ways. If the consumer refuses to buy then businesses have to incentivize their products. But if the consumer is too foolish to stand their ground and not give the business any business then they cannot be blamed for charging what they please. The problem is when you throw money at the consumer for a problem you caused then you destroy that balance, the consumer without a brain starts to foam at the mouth and spend like money is going out of style.
Many people are running away from a vehicle that they are worried will cost them in repairs. They didn’t do their homework before buying, overspent on the vehicle, financed it for 7 years, and have nothing in reserve when inevitable repairs are needed. Their repair fears are justified because most manufacturers are putting crappy engines & transmissions in their vehicles which can’t hit 125k without major repairs.
Then, if they decide to keep it, they fall for the Carshield type scam, where they pay even if no repairs are needed.
For those who think aftermarket warranties are a good idea, just take whatever premium they charge, put it in a separate bank account and use that to fix your car…most likely you’ll come out ahead.
Otherwise, just buy a car you can afford (no longer than 4 yr loan) rather than the one that impresses your family & friends.
@Steve
Totally agree with you, but MOST people now a days because of technology, and the the ability to get basically whatever one wants with a click of a button, go for all the bells and whistles. They try to keep up with the neighbors next door and put themselves in situations that most of us 20 to 30 years ago knew not to do!!!! They 6, 7, 8 year loans on vehicles are insane, and don’t get me started on these clowns that buy $100k+ boats and take out 20 year loans on them. I paid my boat off in 3 years, because I couldn’t stand looking at it in my garage during the winter time and not being able to use it.
GM has raised prices by 30 percent over the last three years to pay for their EV mandate. It will only get worse!