Maskot | Maskot | Getty Photographs
Extra drivers throughout the nation are “underwater” or “the other way up” on their auto loans — that means they owe extra money than the automotive is value. 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 yr, 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 greater was within the first quarter of 2021, when 31.9% of latest automotive trade-ins have been underwater, in response to the report.
Extra from Private Finance:
This is how you can deal with your scholar loans after shedding a job
$1.787 billion Powerball jackpot profitable tickets bought in two states
Methods to get the very best mortgage charges as 30-year fastened nears a 1-year low
Such drivers should not underwater by insignificant quantities. The common 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 take a look at,” mentioned Drury.
Drivers buying and selling in an upside-down automotive might want to give you money to pay that steadiness, 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 vendor with the brand new automobile, as automobiles are depreciating property, mentioned Brian Moody, senior workers author at Autotrader and Kelley Blue E-book.
However different selections you make, resembling 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 customers can do to lower prices,” mentioned Drury.
It has gotten to the purpose the place 84-month auto loans have turn into “more and more frequent,” he mentioned. Within the second quarter of 2025, 84-month auto loans comprised of 21.6% of latest auto loans, up from 19.2% the quarter prior, in response to Edmunds information offered to CNBC.
To check, 72-month loans have been at 36.1% within the second quarter, down from 38.6% in the identical timeframe, in response to the information.
It is not an issue to have unfavorable fairness once you nonetheless personal and drive the automotive, Moody mentioned. It turns into a difficulty when you have to promote or commerce it in.
Unfavorable fairness may also be problematic in case your automobile 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 liable for the remaining price.
Methods to purchase a brand new automotive once you’re underwater
Hold your present automobile in case you can, specialists say, to keep away from having to roll that debt into a brand new mortgage or give you money to cowl it.
In the event you really want a brand new automotive, it is necessary to do preliminary analysis earlier than you even stroll right into a automotive dealership. When you’ve got unfavorable fairness from a previous auto mortgage, rolling it over to a lower-interest automotive mortgage may also help you save on borrowing prices, Drury mentioned.
First, perceive what your credit score rating is, mentioned Moody. Usually talking, the greater your rating, the higher the rate of interest and mortgage phrases lenders give you.
“Figuring out your credit score rating and figuring out what rate of interest you qualify for is necessary 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 may qualify for and distinguish the very best presents.
When you’re prepared to purchase, the auto vendor may both attempt to match the offers you could 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 automobile or taking over a protracted mortgage time period — ask your auto vendor 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 automobile is value, and what’s owed on it” in case your automobile 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 an extra $20 per yr to the annual premium, in response to III.
