Nearly 3 in 10 Trade-Ins Are Underwater. Here Is How to Climb Out Without Digging Deeper

TL;DR

• Edmunds just reported that 29.6 percent of trade-ins toward a new vehicle in Q2 2026 were underwater, up from 26.6 percent a year earlier and the highest second-quarter figure since 2020.
• The average amount owed above the car's value hit $6,884, a record for a Q2.
• Buyers who rolled that debt into a new loan are now averaging $944 a month and are projected to pay $16,270 in interest over the life of the loan. The average new-car buyer pays $9,811. That is roughly $6,500 in extra interest for the privilege of moving old debt forward.
• Being underwater is not an emergency by itself. Rolling it into a longer loan is what turns it into one.

What is actually happening

Negative equity means you owe more on the loan than the car is worth. Sell it or trade it today and you would still owe the lender money afterward.

The numbers behind the current spike are not mysterious. People who bought at 2022's peak prices, often with small down payments and long terms, are now reaching the point where they want out. They are bringing thousands of dollars of old debt to the table with them.

The stretching is visible in the loan data too: a record 31.1 percent of new auto loans now run longer than 72 months, and down payments have drifted down to around 13 percent. Long loans build equity slowly. A car that depreciates faster than you pay it down leaves you underwater for years, not months.

If you want the wider picture, we keep the running figures in our car payment and auto loan statistics page.

Trucks are getting hit hardest

The models bringing the most old debt to the trade-in desk are mostly full-size trucks, which makes sense: high transaction prices, big loans, and a used market that cooled off after the pandemic frenzy.

Edmunds' Q2 figures put the Toyota Tundra at the top with an average of $8,929 in negative equity. The GMC Sierra 1500 averaged $8,568, the Chevrolet Silverado 1500 $8,516, the Ford F-150 $8,417, and the Ram 1500 $8,347. Even the mid-size Toyota Tacoma averaged $7,793.

If you own one of those and financed it in 2022 or 2023, assume you are underwater until you prove otherwise.

Step one: find out where you actually stand

This takes about ten minutes and it is the only way to make a real decision.

Get your exact payoff. Not your balance. Call the lender or check the app for the ten-day payoff amount, which includes interest accrued to the date you would settle. It is usually a bit higher than the balance shown.

Get a real market value. Not a guess and not the sticker on a similar car at a dealer. Pull actual instant-offer quotes from the online buyers, and check what your exact year, trim, and mileage is selling for privately in your area.

Subtract. Payoff minus value is your number. If it is positive, you are underwater by that amount. Write it down, because every option below is judged against it.

A useful gut check: if the gap is under about a thousand dollars, this is a rounding error you can manage. If it is $7,000, that is a real financial position and it deserves a plan.

The five ways out, ranked by what they cost you

1. Keep driving it. Boring, and usually correct. Every payment you make now goes further toward principal than the last one did, while the car's depreciation curve flattens out. Time is the cheapest solution to negative equity. If the car is reliable and you can stand it, driving it another year or two often erases the gap entirely.

2. Refinance to kill the interest, not to lower the payment. If your rate is high because you financed at the dealer or your credit has improved since, refinancing at a better rate sends more of every payment to principal, which builds equity faster. The trap is refinancing into a longer term to shrink the monthly number, which feels like relief and quietly deepens the hole. Run your numbers through the Refinance Verdict first, and read how to refinance an auto loan for the mechanics. Shopping with a soft-pull prequalification lets you compare offers without shredding your credit score.

3. Pay the difference in cash. If you have the money and you genuinely need out of the car, writing a check for the gap is the cleanest exit. It hurts once, then it is over, and nothing follows you into a new loan.

4. Sell it privately and cover the gap. A private-party sale typically brings more than an instant offer or a trade-in, sometimes enough to shrink the gap meaningfully. It is more work, and you have to coordinate the payoff with the lender so the title clears. Our private-party selling guide walks through doing it without getting scammed, and the pricing guide covers what to ask.

5. Roll it into the next loan. This is what almost 30 percent of buyers are doing, and it is last on this list for a reason. See below.

The move that turns a problem into a spiral

Rolling negative equity into a new loan does not make the debt disappear. It moves it onto a bigger loan, usually at a longer term, and you start the depreciation clock over on a car that is now worth less than you financed.

The Edmunds numbers make the cost concrete. Buyers doing this are averaging $944 a month and are on track for $16,270 in interest, against $9,811 for the average new-vehicle buyer. That is roughly $6,500 of extra interest, and the day they drive off they are underwater again, deeper than before, on a longer contract.

There are narrow cases where it is defensible. A genuinely unreliable car that is costing you repairs and missed work is a real problem, and a manageable gap of a few hundred dollars rolled into a sensible loan is not going to ruin you. If you are in that spot, run the repair math honestly with the Sell or Keep Verdict before you decide the car is the problem.

What is not defensible is rolling $8,000 forward because you are bored of the car.

While you are underwater, protect the downside

There is one specific risk worth covering. If the car is totaled or stolen while you owe more than it is worth, your insurer pays the car's value, not your loan balance, and you are on the hook for the difference.

That is exactly what gap coverage exists for. It is worth having while the gap is large, and it is worth buying somewhere other than the finance office, where it is routinely marked up. We covered how that works in gap insurance without the dealer markup.

The bottom line

Being upside down is uncomfortable, but it is not urgent unless you make it urgent. The record here is not that people owe too much, it is that so many of them are choosing the one exit that makes the math worse.

Find your real number, then pick the cheapest option you can live with. Usually that is driving the car longer, sometimes with a refinance that shortens the road instead of lengthening it. And if you are shopping for the next car anyway, decide what you can actually afford using the real affordability formula before a finance manager decides it for you.

FAQ

What does it mean to be underwater or upside down on a car loan?

It means your loan payoff is higher than the car's market value. If you sold it today at fair value, the proceeds would not cover what you owe, and you would have to pay the lender the difference.

How long does negative equity usually last?

It depends on your down payment, term length, and how fast the model depreciates. On a long loan with little money down it can persist for years. Every payment shifts the balance in your favor, and depreciation slows as the car ages, so the gap typically closes on its own with time.

Is it ever smart to roll negative equity into a new loan?

Occasionally, if the amount is small and the current car is genuinely unreliable or unsafe. As a routine move it is expensive: Edmunds projects those buyers pay about $16,270 in interest versus $9,811 for the average new-car buyer, and they end up underwater again immediately.

Does refinancing fix negative equity?

Not directly. Refinancing does not reduce what you owe. A lower rate sends more of each payment to principal, which closes the gap faster. Extending the term to lower the payment does the opposite and keeps you underwater longer.

Which vehicles have the worst negative equity right now?

Full-size trucks lead. In Q2 2026 Edmunds put the Toyota Tundra highest at an average $8,929, followed by the GMC Sierra 1500 at $8,568, Chevrolet Silverado 1500 at $8,516, Ford F-150 at $8,417, and Ram 1500 at $8,347.