Trading In An Underwater Car Can Add Nearly $6,500 in Interest

Trading in an underwater car and rolling the remaining debt into a new loan can cost borrowers nearly $6,500 in additional interest.

Buyers who roll negative equity into a new-vehicle loan are projected to pay an average of $16,270 in interest over the life of the loan, according to Edmunds. That is an all-time high and $6,459 more than the $9,811 projected for the average new-vehicle buyer.

Rolling that debt into a new loan leaves underwater car buyers paying thousands more in interest — along with record monthly payments.

The average monthly payment for a new-vehicle loan with negative equity on the trade-in reached $944 in the second quarter of 2026, the highest figure Edmunds has on record.

Nearly Three in 10 Trade-Ins Underwater

Almost three in 10 trade-ins toward new vehicles are underwater, with borrowers owing an average of $6,884, according to Edmunds’ second-quarter 2026 data.

“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,” said Jessica Caldwell, Edmunds’ Head of Insights. 

These buyers often use longer loan terms to offset high interest rates and lower their monthly payments.

“With interest rates still elevated, this is creating a costly snowball effect for consumers. As buyers roll over their negative equity, the 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,” Caldwell said. 

A separate Cox Automotive analysis found that 58% owed more than their vehicles were worth in February 2026.

How Negative Equity Happens

Here’s a look at how negative equity typically happens.

Car buyers may put very little money down or stretch their payments over a longer loan term — or both. Toss in high interest rates and vehicle depreciation, and borrowers can quickly end up owing more than their cars are worth.

Here are some tips for avoiding getting stuck with negative equity on a car loan.

Choose the shortest loan term you can manage. Think five years, not six or seven. Make a sizable down payment, at least 20% is a good goal.

Choose a car with a price tag that you can afford without having to stretch out loan payments.

These steps can reduce the risk of owing more than the vehicle is worth when it is time to sell or trade it in.

If you already have negative equity, pay it down as quickly as possible by making additional principal-only payments.