More borrowers are upside-down at trade-in time, and for larger amounts, because they “bought high” on their new car during the pandemic and the new-car shortage, and if they trade in that same, overpriced car now, they’re going to “sell low,” relatively speaking, according to Edmunds researchers.
Upside-down, also called negative equity, is when a new-car buyer owes more on their trade-in than the trade-in is worth. An increase in negative equity makes it harder for dealers to get new-car buyers financed affordably, analysts said.
“People were paying thousands of dollars over sticker” during the pandemic and its aftermath, Jessica Caldwell, executive director for insights at Edmunds, told WardsAuto in an interview.
“The unfortunate reality is, for the resale value of your car, what you paid for it doesn’t matter, in terms of what it’s worth now. If instead of $40,000, you paid $44,000 — no matter what, you’re going to be adding an additional amount to the amount underwater,” she said.
According to Edmunds, 29.3% of trade-ins toward a new-car purchase carried negative equity in the fourth quarter of 2025. That was the highest share since the first quarter of 2021, when it was 31.9%, Edmunds said.
The average amount owed on underwater trade-ins in Q4 2025 was a record $7,214, vs. a recent low of around $4,000 in Q1 2021, according to the Edmunds research.
That’s on average. But 27% of upside-down trade-ins carried $10,000 or more in negative equity, also a record, Edmunds said.
It wasn’t all downside for new-car buyers who paid inflated prices during the pandemic and the resulting computer-chip shortage. Offsetting some of the sting, used-car prices were inflated at the same time, so those buyers got higher-than-normal prices on their trade-ins a few years ago.
That’s not the case today, as used-car prices are down from earlier record highs.
“As the market has moved beyond the supply shortages of recent years, vehicle prices have normalized and depreciation has returned to more typical patterns,” said Ivan Drury, Edmunds director of insights, in a written report published Jan. 15.
He added: “Loans that originated when prices were elevated are now aging into a market where values are no longer inflated, making the gap between what many buyers owe and what their vehicle is worth more apparent.”
