Consumer auto debt is intensifying, putting a strain on both the new and used car market.
The details: A new report from Edmunds, released Thursday, reveals how deeply payment stress is now embedded in the market, with negative trade-in values hitting record highs on multiple fronts.
29.3% of trade-ins toward new-vehicle purchases had negative equity in Q4 2025, the highest share since Q1 2021.
The average amount owed on underwater trade-ins reached $7,214 in the fourth quarter, an all-time high for Edmunds.
More than one-quarter of upside-down trade-ins (27%) carried $10,000 or more in negative equity, also a record.
Among those carrying $10,000 or more in negative equity, 17.4% owed between $10,000 and $15,000, while 9.2% carried balances above $15,000, both record highs.
Why it matters: For dealers, record levels of negative equity make every deal harder: more customers can’t trade out cleanly, more structures require stretched terms or bigger advances, and lender pushback is likely to grow. Stores that get ahead of this (by tightening appraisals, coaching sales teams on realistic options, and using pre-owned, lease, and pull-ahead strategies wisely) will be better positioned than those that simply keep rolling big balances into the next loan.
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Between the lines: Edmunds attributes the rise in upside-down auto loans to several factors, many tied to loans that originated during the pandemic era.
With low new-vehicle inventory and fewer discounts, many buyers paid closer to (or above) MSRP and had less flexibility to choose lower-priced models or trims.
Leasing options were also limited, pushing some consumers to purchase instead, leaving them unprepared for the financial realities when trading in around the three-year mark.
What they’re saying: “As the market has moved beyond the supply shortages of recent years, vehicle prices have normalized and depreciation has returned to more typical patterns,” noted Edmunds’ Ivan Drury in the report. “Loans that originated when prices were elevated are now aging into a market where values are no longer inflated, making the gap between what many buyers owe and what their vehicle is worth more apparent.”
Bottom line: The wave of pandemic-era loans is now colliding with a more normal depreciation curve. Dealers who prioritize transparent equity conversations, avoid overloading new contracts with rolled-in debt, and lean on right-car/right-term matchmaking will not only get more deals bought, they’ll also protect future trades and long-term customer relationships.
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