American Car Debt Is Piling Up. Tips to Avoid Being Underwater

With new car prices averaging close to $50,000, more buyers than ever are going deeper into debt to finance vehicle purchases.

Almost 30% of recent new car buyers were underwater on loans for their trade-ins, meaning they still owed more on their old cars than they were worth at the time, according to new data recently released by Edmunds.

Edmunds said the average amount of negative equity, or remaining balance, on cars traded in during the second quarter of 2026 was $6,884, which the group said was up from an average of $6,754 in the second quarter of 2025 and also the highest for a second quarter on record.

“Consumers are incurring more debt than ever when trading in vehicles that are underwater,” Jessica Caldwell, Edmunds’ head of insights, said in a statement. “Buyers who financed at 2022’s peak prices are starting to come back to trade in, and they’re bringing thousands of dollars in old debt with them.”

With that in mind, the USA TODAY Cars team took a look at how much buyers typically still owe on their cars when they attempt to trade them in as well as some tips for getting above water on your next loan.

How Much Do Car Buyers Owe on Their Trade-Ins on Average?

Edmunds said car buyers owed an average of $6,884 on their trade-ins in the spring of 2026, which was the highest level the group said it has ever recorded for a second quarter. The average amount owed was down from $7,183 last quarter, but it was up from $6,754 in second quarter of 2025.

The group attributed the rise in negative equity on trade-ins to rising new car prices and long loans that originated after the height of the COVID-19 pandemic and a lack of deals during that time.

Caldwell said the problem of being underwater on car loans is difficult for car shoppers to escape, especially if they want the latest, most modern models that are populating showrooms now.

“With interest rates still elevated, this is creating a costly snowball effect for consumers,” Caldwell said. “As buyers roll over their negative equity, their new loan principals swell. Relying on longer loan terms as a coping mechanism to keep monthly payments down only causes total interest charges to be higher in the long run.”

What’s the Downside of Being Underwater on a Car Loan?

As new car prices continue to rise, Americans who need transportation are opting for longer loans in a bid to keep monthly payments as low as possible.

Nearly 50% of all new car buyers are opting for loans that last longer than 72 months, according to a poll from Lending Tree. According to the poll, 47.5% of Americans with auto loans have terms longer than 72 months, including 7.6% who have terms longer than 84 months.

Edmunds said its data highlights that “even highly regarded vehicles known for holding their resale value are not immune to financing challenges.”

“It’s easy to assume negative equity is just a story about vehicles that depreciate quickly, but some of the biggest dollar losses we’re seeing are on trucks and sedans that traditionally hold their value better than most,” Ivan Drury, Edmunds’ director of insights, said in a statement.

“When historically safe residual value bets are showing up underwater, it’s clear this is a financing problem, not always a vehicle choice problem,” Drury continued. “These examples are a harsh reminder that a great vehicle choice can still be completely undermined by a punishing loan structure.”

What Can Shoppers Do to Avoid Rolling Over Debt on Their Next Car Purchase?

Edmunds offered these tips for avoiding the cycle of rolling over negative equity on car loans:

• Understanding how much a vehicle is worth relative to what’s owed
• Choosing purchases that hold their value and align with long-term needs
• Recognizing that focusing only on monthly payments can obscure the true cost of a purchase

Michelle Singletary, a personal finance columnist for The Washington Post, said car shoppers who are staring down the possibility of rolling old car debt into a new vehicle purchase should consider holding on to the older vehicles longer to pay down more of their outstanding loans. If they absolutely have to buy a new car, she suggested either buying a smaller, less expensive model or leasing if they can’t make the numbers work otherwise.

“Often buyers trade in because they are facing a major repair bill,” she wrote in a July 25 advice column. “But many could keep their cars longer if they simply kept up with routine maintenance.”

Singletary added: “If you must buy another vehicle while underwater, choose something significantly cheaper than your current ride.”

Singletary suggested a driver who is looking at trading in a gas-guzzling car on which they still owe $10,000 to upgrade to a $50,000 hybrid car to save money on gas should instead consider a used $20,000 sedan to save on interest payments and still get better gas mileage.

“If you still owe $10,000 on your current loan, you’d end up borrowing $60,000 in total,” she wrote. Singletary added, “I have spent my career advising people never to lease. Outside of business owners who qualify for a deduction on the expense, leasing is almost always a losing financial proposition.”

But, she said “monthly payments are usually lower than buying a new car because you are financing only the vehicle’s projected depreciation over the lease term, plus interest and fees, rather than the full purchase price.”

Keith Laing is an automotive reporter on the National Trending Desk at USA TODAY.