Auto loan delinquencies soar to highest level in decades
Americans with low credit scores are increasingly falling behind on their car payments, underscoring the growing financial stress across the U.S. economy.
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- The average upside-down auto loan amount reached $6,884 in the second quarter of 2026, the highest ever for a second quarter, according to new research from Edmunds.
- Car loans longer than 84 months will put more drivers at risk of defaulting on their car loan payments when purchasing their next car or truck.
Drivers always risk finding themselves in a financial bind if they want to buy a new car just a year or two after taking out a car loan.
Especially with a small down payment, car buyers are much more likely to pay more on a loan for an older car than they would be if they were trading in a one- or two-year-old car or truck.
This is called negative equity, and we are breaking records again. But that’s not because everyone is buying a new car too soon.
The average age of underwater trade-ins reached four years, another record for the second quarter. This is up from 3.8 years in the second quarter of last year. However, it will decrease slightly from 4.3 years in the first quarter of 2026.
The average value of these upside-down loans reached $6,884 in the second quarter of 2026, a record high for the second quarter, according to new research from Edmunds. This is up from $6,754 in the second quarter of last year. However, it is down from $7,183 in the first quarter of 2026.
You would be surprised how many drivers are submerged in water
In the second quarter, nearly 3 in 10 new car trade-ins, or 29.6%, were underwater, the highest second-quarter figure since 2020. This is a slight decrease from the 30.9% share recorded in Q1, but an increase from 26.6% in Q2 2025. This is well below the 37.2% level recorded in the second quarter of 2020.
Ivan Drury, director of insights at Edmunds, shared some theories with the Detroit Free Press, part of the USA TODAY Network, about why so many borrowers are encountering these financial landmines.
Part of this scene dates back to 2022, when cars and trucks were in short supply following the onset of the COVID-19 pandemic in early 2020, with semiconductor chip shortages and supply chain disruptions.
Buyers paid peak prices (probably higher than list price) and got what they could find on dealer lots in 2022, when inventory was tight. Perhaps they added an extended warranty or other add-ons as well. As a result, many people end up taking out higher-priced car loans to make that deal.
Drury said many people are currently dealing with the fallout from penalties on their loan structures.
Additionally, at the time, some people were rolling part or all of the money they owed on their old car into their new car loan. You may have had to borrow again to pay off your old car loan.
“They should be ahead, but they’re not,” Drury said.
As car loans become increasingly expensive, it can become a negative economic cycle.
For new car loans with negative trade-in equity, average monthly payments jumped to $944, according to Edmunds.
How many dollars are we talking about for some cars and trucks?
Here’s a quick look at the trade-in models that led to high levels of average negative equity in Q2.
Among drivers who faced negative equity in the second quarter, the average driver who traded in a 2022.6 Honda Civic owed $4,778 more than the trade-in value they paid.
Vehicles trading Toyota Tundras with an average model year of 2023.4 had an average negative equity of $8,929 in the second quarter.
People who traded in a Chevrolet Silverado 1500 with an average model year of 2021.9 ended up with an average of $8,516 in negative equity. The average model year 2022.2 GMC Sierra 1500 had an average negative equity of $8,568 at trade-in.
Those who traded in a Ford F-150 with an average model year of 2021.1 had a negative average equity of $8,417 in the second quarter. These were gasoline fueled trucks, not Lightning EV models. EVs in general, including the Ford Lightning, are in a very difficult situation in the resale market.
The average driver who traded in an average model year 2023.1 Toyota Camry had a negative equity of $7,030.
Drury said in some cases, drivers with negative equity have the right vehicle but are financing it incorrectly.
Let’s take a ride in the Toyota Tacoma. Mid-sized workhorses typically have exceptional resale value, he said. But according to Edmunds data, drivers who traded in an average 2023.2 Toyota Tacoma had an average negative equity of $7,793 in the second quarter.
He said many of these factors are likely to have faced financial consequences from painfully structured loans in the past. The cars and trucks they buy don’t necessarily hold a good value. Sometimes I took out loans and got even deeper into debt.
Good car selection can be undermined by harsh loan structures, he said.
How to avoid some traps that can cause negative equity
How can you avoid finding yourself in a negative equity situation? Or maybe you’re stuck financially because your car’s trade-in value is much lower than you expected?
Make sure you are not borrowing unnecessarily. In many cases, financing costs only increase if you pay extra for things like extended warranties, specialty paint, upholstery protection, and other dealer-installed options not added by the manufacturer but added to the dealer sales contract.
Also be aware of hidden costs.
A group of about 100 auto dealers came under fire from the Federal Trade Commission in early 2026 for misleading consumers with low prices and adding mandatory fees at the end of the purchase process. In some cases, retailers required consumers to purchase additional items not reflected in the advertised price.
The FTC did not identify the auto group. A group can also own multiple outlets.
High and deceptive fees and other tactics can increase borrowing costs.
Search for car loans: Interest rates can be all over the map based on your credit score, the deals your lender offers to build your auto loan portfolio, and the numbers adjusted at the dealership’s finance office.
Before you buy a car, do your own research on lenders before getting pre-approved for a car loan from a credit union, bank, or online lender. Some online lenders focus on borrowers with bad credit.
For example, a dealer who offers you an exorbitant interest rate may try to offset that interest rate by offering you a lower trade-in value for the car or truck you unload, warns Teresa Murray, director of the consumer watchdog office at nonprofit advocacy group US PIRG.
The FTC charged that some dealerships falsely claimed that buyers needed to obtain financing at the dealership. The FTC said illegal pricing practices include using dealer financing to condition advertised prices on consumers.
Keep in mind that paying a much higher interest rate means it will take longer to build up equity in that car or truck.
Consider leasing: Drury said some people who want to buy a new car every two years are likely better off leasing as a way to avoid going into negative equity.
Make sure you get a good deal on your trade-in. Experts usually recommend negotiating the price of the car separately from financing or trade-in. Kelley Blue Book Instant Cash Offer provides no-obligation offers online. Visit KBB.com. Edmunds Instant Cash Offers are available at Edmunds.com. Alternatively, you can see what you can get if you sell the car yourself.
Don’t jump into a long-term car loan. Many buyers extend their car loan for as long as possible to reduce their monthly payments.
According to Edmunds research, 23.9% of borrowers signed loans for 84 months or longer in the second quarter, a record high. Yes, that’s a 7 year car loan.
Edmunds said 36.5% of all buyers who financed their new car purchases in the second quarter took out loans of 73 months or more, an all-time high, up from 27.3% a decade ago.
Consider what happens when you sign the paperwork for a 7-year, $40,000 new car loan at 7%. Even if you make all your payments on time, you’ll still owe about $25,200 on your car loan after three years.
Based on Calculator.net’s Auto Loan Calculator, if you take out a $50,000 loan, you’ll owe approximately $31,500 after three years.
How much can my trade-in cover the remaining loan payments? It might not be as much as you expected.
Drury warns that too many consumers believe that if they pay their bills on time, they’ll never have negative equity. But that’s not the case.
Many consumers may not realize that interest on auto loans is usually paid up front. That means your monthly payments for the first few years of your car loan will have the highest interest rates, and you’ll accumulate less equity during that time than you might think.
Don’t bet on getting the highest amount on a trade. Whether you owe more on a car loan than your car is worth depends largely on the mileage on your car, its condition, how much you’re willing to trade in, the popularity of the make and model of your car or truck, whether the car has had any major recalls, whether the model is scheduled for a major redesign, or even if the manufacturer decides to stop making the car altogether in the future.
When it comes to car loans, car prices, and trade-in values, we talk about a lot of variables. Unfortunately, the risk is increasing when you want a new car and you could end up owing more money on your old car loan than you expected.
Contact personal finance columnist Susan Tompol: stompor@freepress.com. follow himr X @tompor.
