Americans owe more than ever on their underwater car loans

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(NewsNation) — Americans are drowning in car debt, and the water’s rising fast.

Last quarter, 28% of trade-ins toward new car purchases were underwater, meaning the vehicles were worth less than what was owed on them, according to Edmunds. That’s the highest share in four years.

Borrowers with upside-down car loans also owed more than ever — an average of $6,905, up more than 60% from four years earlier.

Ivan Drury, Edmunds’ director of insights, said the amount of trade-in debt consumers are carrying should be a “wake-up call.”

“Much of this stems from shoppers trading out of vehicles too quickly, or carrying loans taken out during the pandemic car market frenzy, when prices were at record highs,” Drury said in a statement.

Those choices have led to more underwater car loans carrying significant debt, often over five figures. Edmunds said nearly 25% of trade-ins with negative equity had more than $10,000 in debt last quarter — a record share.

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Edmunds’ latest figures add to mounting evidence of growing strain among borrowers, and some fear that auto finance is at a breaking point.

“Delinquencies, defaults, and repossessions have shot up in recent years and look alarmingly similar to trends that were apparent before the Great Recession,” the Consumer Federation of America warned in a September report.

Auto debt has overtaken student loans as the largest non-mortgage debt category, with Americans owing roughly $1.66 trillion on their vehicles.

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And there’s no sign that new car prices are coming down.

The average American new car buyer paid a record $50,080 in September, Kelley Blue Book reported this week. It’s the first time that figure has ever topped the $50,000 mark.

Kelley Blue Book attributed the spike to three factors: tariff costs, luxury shoppers, and a rush to claim the expiring EV tax credit.

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