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Extra drivers throughout the nation are “underwater” or “the other way up” on their auto loans — which means they owe extra money than the automotive is price. That is costing them when it comes time to purchase a brand new automotive.
About 26.6% of trade-ins towards new automotive purchases had unfavorable fairness within the second quarter of 2025, in accordance to Edmunds, an auto website. That determine is up barely from 26.1% within the first quarter of the 12 months, and the best it has been within the final 4 years, mentioned Ivan Drury, the director of insights at Edmunds.
The final time it was larger was within the first quarter of 2021, when 31.9% of recent automotive trade-ins had been underwater, based on the report.
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Such drivers are usually not underwater by insignificant quantities. The typical quantity owed on upside-down loans within the second quarter was $6,754, down barely from the prior quarter’s $6,880, Edmunds discovered.
“It is a staggering determine to have a look at,” mentioned Drury.
Drivers buying and selling in an upside-down automotive might want to give you money to pay that stability, or roll it into their new mortgage, specialists say.
How drivers find yourself ‘underwater’
To make sure, it is common to see underwater auto loans.
It’s possible you’ll already be underwater in your mortgage from the second you drive out of the seller with the brand new car, as automobiles are depreciating property, mentioned Brian Moody, senior workers author at Autotrader and Kelley Blue Ebook.
However different selections you make, corresponding to taking over an extended mortgage time period or making a smaller down cost, can exacerbate the difficulty.
Nonetheless, lengthening an auto mortgage’s phrases is “the one factor shoppers can do to lower prices,” mentioned Drury.
It has gotten to the purpose the place 84-month auto loans have grow to be “more and more widespread,” he mentioned. Within the second quarter of 2025, 84-month auto loans comprised of 21.6% of recent auto loans, up from 19.2% the quarter prior, based on Edmunds knowledge supplied to CNBC.
To check, 72-month loans had been at 36.1% within the second quarter, down from 38.6% in the identical timeframe, based on the information.
It is not an issue to have unfavorable fairness whenever you nonetheless personal and drive the automotive, Moody mentioned. It turns into a problem when it is advisable to promote or commerce it in.
Unfavorable fairness may also be problematic in case your car is totaled. After an accident, your insurer will usually pay the precise money worth of the automotive. If that is lower than what you owe in your mortgage, you are accountable for the remaining price.
The best way to purchase a brand new automotive whenever you’re underwater
Hold your present car for those who can, specialists say, to keep away from having to roll that debt into a brand new mortgage or give you money to cowl it.
When you really want a brand new automotive, it is vital to do preliminary analysis earlier than you even stroll right into a automotive dealership. In case you have unfavorable fairness from a previous auto mortgage, rolling it over to a lower-interest automotive mortgage will help you save on borrowing prices, Drury mentioned.
First, perceive what your credit score rating is, mentioned Moody. Typically talking, the larger your rating, the higher the rate of interest and mortgage phrases lenders give you.
“Realizing your credit score rating and understanding what rate of interest you qualify for is vital to know upfront,” Moody mentioned.
Attempt to get pre-approved for various auto loans throughout a number of banks or lenders, mentioned Drury. This helps you get a greater gauge of the phrases you possibly can qualify for and distinguish the very best provides.
When you’re prepared to purchase, the auto seller would possibly both attempt to match the offers you may have or provide higher financing choices, he mentioned.
If you are going to be underwater on that new mortgage — say, since you’re rolling in debt out of your prior car or taking over an extended mortgage time period — ask your auto seller or insurer about assured asset safety insurance coverage, also referred to as hole insurance coverage, mentioned Moody.
“Hole insurance coverage covers the distinction between what the car is price, and what’s owed on it” in case your car is in an accident, in accordance to the Insurance coverage Data Institute, an business group.
In most insurance policies, including hole insurance coverage alongside collision and complete protection can price a further $20 per 12 months to the annual premium, based on III.