Nearly one-third of consumers trading in vehicles for their next vehicle are carrying a near-record amount of negative equity of $7,183. A new report from Edmunds shows that the average negative equity recorded in Q1 was the second-highest for any quarter.
What we know: The negative equity is being brought to the negotiating table on trade-ins for a significant portion of today’s buyers.
Edmunds’ Q1 data showed:
30.9% of car buyers had negative equity in trade-ins.
Elevated vehicle prices and high interest rates of 7.9% are pushing monthly payments for those buyers to $932.
90.2% of consumers taking out new loans carrying negative equity are extending terms to 72 months or longer, and 43% are entering 84-month loan agreements.
Zooming in: The negative equity issue can be traced back to many car purchases made after the COVID-19 pandemic, when vehicle prices spiked, according to Edmunds consumer insights analyst Joseph Yoon.
“During the pandemic, a lot of people did overpay for their vehicles. Dealers didn’t have the inventory, and people did what they had to. [The negative equity] clearly goes back to that time where people were paying over sticker. This is just an unfortunate byproduct of the kind of economic chaos that we had during that time.”
Joseph Yoon, consumer insights analyst with Edmunds
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To illustrate that point, the average age of negative-equity trade-ins is 4.3 years, a record high.
It’s not just consumers trading in newer vehicles who are in a negative-equity situation.
What they are saying: Anecdotally, Yoon said qualifying for new loans hasn’t been an issue so far with a majority of car buyers.
“For the past year and a half or two years, over 60% of new car purchases are by households with over $100,000 in income,” Yoon said. “Where it becomes more complicated is with the used and lower end of the market.”
Why this matters: Though some industry data points to vehicles retaining their values more (CARFAX data shows that 2025 models depreciated 12.5%), the negative equity issue is not expected to disappear.
Car prices remain elevated (vAuto data from April shows new vehicle prices at $48,667 and used at $25,390), and down payments have decreased (Edmunds showed down payments dropped more than $100 in Q1 as transaction prices increased by $467).
Edmunds reported Q1 buyers with negative equity financed an average of $55,970, $12,071 more than other purchasers.
“I don’t see this improving anytime soon, and one of the reasons is we don’t see down payments going up,” Yoon said.
“If the down payments are going down while the prices are going up, it means people are borrowing more. If you borrow more, however they structure the interest amortization, all that interest is front-loaded. That means it’s going to take people a long time to start eating into that principal. Even if vehicles are holding value, it doesn’t really matter…A lot of these people are not going to be getting into significant portions of the principal until they are typically halfway into a loan.”
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