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More drivers across the country are “underwater” or “upside down” on car loans. This means you’re borrowing more money than your car is worth it. When it’s time to buy a new car, it costs them.
According to car site Edmunds, in the second quarter of 2025, approximately 26.6% of trade in new car purchases had negative capital. That figure is a small increase from 26.1% in the first quarter of the year, the highest in the last four years, said Ivan Dooley, Edmunds’ insights director.
The last time it was high in the first quarter of 2021, when 31.9% of new car trade inns were underwater.
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Such drivers are not underwater for insignificant amounts. The average amount paid on upside down loans in the second quarter was $6,754, a slight decrease from $6,880 in the last quarter, Edmunds found.
“It’s an incredible person to watch,” Drury said.
Drivers who trade in upside-down cars will need to come up with cash to pay their balance.
How to get the driver to “underwater”
Certainly, it’s not uncommon to see underwater car loans.
Brian Moody, senior staff writer for AutoTrader and Kelley Blue Book, said that because cars are depreciable assets, they could already be underwater on loan from the moment they are kicked out of the dealership with a new vehicle.
However, other options, such as getting a longer loan term or making a smaller down payment, can make the problem worse.
Still, extending the terms of car loans is “one of the things consumers can do to reduce costs,” says Drury.
He said 84-month car loans have become a “increasingly common.” According to Edmunds data provided to CNBC, in the second quarter of 2025, 21.6% of new car loans consisted of 21.6% of new car loans.
By comparison, data shows that the 72-month loan in the second quarter was 36.1%, down from 38.6% for the same period.
Moody said having negative fairness doesn’t matter when you’re still owning and driving a car. It becomes a problem when you need to sell or trade it.
Negative fairness can also be an issue if your vehicle is totalling. After an accident, the insurance company usually pays the actual cash value of the car. If that is less than what you owes on your loan, you will be liable for the remaining costs.
How to buy a new car underwater
Keep your current vehicle as much as possible, and experts will make sure you don’t have to involve that debt in a new loan or come up with cash to cover it.
If you really need a new car, it’s important to do a preliminary investigation before you enter the car dealership. If you have negative equity from a previous car loan, Drury said, bringing it into a lower profit car loan can help you save on borrowing costs.
First, understand what your credit score is, Moody said. Generally speaking, the higher your score, the more interest rates and loan terms are provided by the lender.
“It’s important to know beforehand to know your credit score and know what you qualify for,” Moody said.
Try getting pre-approval of various car loans across several banks and lenders, according to Drury. This allows for improved gauges of terms that allow you to distinguish between qualifying and distinguishing the best offers.
Once you’re ready to buy, the car dealership may try to match the deal you have or offer better funding options, he said.
If you’re underwater on that new loan – for example, because you’re in debt from a previous vehicle or taking a long loan term – ask your car dealer or insurer about guaranteed asset protection insurance, also known as GAP insurance, Moody said.
According to the industry group’s insurance intelligence agency, “Gap insurance covers the difference between what the vehicle is worth and what it owes to it,” if your vehicle is in an accident.
According to III, most policies could cost an annual premium of $20 a year if you add gap insurance along with conflict and comprehensive coverage.
