A new report from auto research firm Edmunds says car owners defaulting on their auto loans is “more common than ever and more costly.”
“Underwater trade-in values are at an all-time high,” Edmunds said.
The latest findings reveal just how bad things are for people whose car loans are in negative territory.
According to Edmunds data, 29.3% of people who traded in a car to buy a new car had negative equity (meaning they owed more than the car was worth) in the final quarter of 2025, the highest percentage since 2021.
The average amount owed on underwater trade-ins hit an all-time high of $7,214.
27% of upside-down trade-ins had negative equity of $10,000 or more. Edmunds said this is also an all-time high.
17.4% of consumers still have debt between $10,000 and $15,000, and just over 9% have balances above $15,000, both record highs.
And things get even worse.
Previously, car loans were expected to last only 72 months, but the report says 40.7% of new car purchases with negative equity are now financed with 84-month loans.
While this route could reduce monthly costs, Edmunds analysts said it would not address loan repayment issues and would instead lengthen the loan and create more debt.
According to Lending Tree, Generation X borrowers, those born between 1965 and 1980, currently have the longest-term auto loans. About 53% have loans for longer than 72 months.
They also had the highest monthly car payments, at nearly $600 a month, with some paying more than $1,000 a month.
Going into 2026, the average monthly car payment for buyers who retained the negative value and transferred it to a new loan was approximately $916.
“Typical trade-in actions collide with rising prices and borrowing costs, making it difficult to escape negative equity once a buyer falls out,” Edmunds.com said.
