Writer: Lucy Lazarony
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
- The two factors of negative equity and delinquencies are contributing to greater exposure risks for auto loan lenders.
- More than 3 in 10 American consumers trading in a vehicle today have negative equity—meaning they owe more on a car loan than the car is worth.
- The current 6.9% delinquency rate for subprime auto borrowers has surpassed the 5% peak during the 2008 financial crisis.
Rising delinquencies and negative equity on auto loans are leading to greater exposure risks for lenders. Both of these trends are on the rise, driven by higher vehicle prices.
In March, the new-vehicle manufacturer’s suggested retail price (MSRP) was more than $50,000 for the 12th consecutive month, according to Kelley Blue Book. High vehicle prices push buyers into longer financing terms.
The average car loan term was 68.94 months — or 5.7 years — for a new car in the fourth quarter of 2025, according to Experian. Subprime and near-prime borrowers are taking out even longer car loans.
For subprime borrowers with credit scores from 501 to 600 the average new car loan term was 74.33 months — or close to 6.2 years. For near-prime borrowers with credit scores from 601 to 660, the average new car loan term is 75.11 months — or nearly 6.3 years.
Impact of High Prices and Longer Loans
Longer financing terms result in lower monthly payments for consumers. But these longer loan terms mean higher overall interest costs on the loan and often negative equity. Negative equity means borrowers are upside down on their car loans and owe more on the loan than the car is worth.
This is a difficult spot for consumers and an exposure risk for lenders.
How widespread is negative equity? According to Edmunds, more than 3 in 10 American consumers trading in a vehicle today owe more on their loan than their car is worth. The average trade-in with negative equity owes $7,183 — up 42% from five years ago.
The average monthly payment for a new vehicle with a buyer rolling in negative equity into a new loan is $932. This is $159 more than the typical car buyer pays.
Edmunds data shows 30.9% of trade-ins toward new-vehicle purchases carried negative equity in the first quarter of 2026 — the highest share of underwater trade-ins since the first quarter of 2021.
Auto Loan Delinquencies at High Level
The news is also troublesome when it comes to delinquencies. A delinquency means a borrower is at least 60 days late on their auto loan and more subprime borrowers are falling behind on their payments.
Earlier this year, the Fitch Ratings ABS Index and Equifax reported the 60-day delinquency rate on subprime auto loans had reached a record high of 6.9%. This 6.9% delinquency rate is greater than the 5% peak recorded during the 2008 financial crisis.
A high delinquency rate is bad news for subprime lenders. Consumers who are 60 days late on payments could easily slip into defaulting on their loans and give up their cars altogether.
The Bottom Line
An increase in auto loan delinquencies and a rise in negative equity on car loans are contributing to greater risk exposures for lenders. Delinquencies on subprime auto loans climbed to 6.9%, a troubling statistic.
Negative equity played a role in more than 3 in 10 trade-ins, and the average trade-in with negative equity owes $7.183. Owing more on a loan than a car is worth is a risky situation for consumers and lenders alike, and a trend that is unfortunately likely to continue.
