Nearly a Third of Trade-Ins Are Underwater. Here’s What It Costs.

There is a version of car buying where the trade-in is the easy part. You hand over the keys, they knock some money off, everybody shakes hands. That version is getting rarer.

Edmunds put hard numbers on it for the second quarter of 2026, and they are not comfortable reading.

Trades underwater

29.6%Of trade-ins toward a new vehicle, Q2 2026

Average shortfall

$6,884Highest for any second quarter on record

Monthly payment

$944Vs. $777 for the average new-vehicle buyer

What “underwater” actually means

You are underwater when your loan payoff is higher than what the vehicle is worth. Owe $24,000, car appraises at $18,000, you are $6,000 in the hole. That $6,000 does not disappear when you trade. It gets added to the financing on the next car.

The share of new-vehicle trade-ins in that position hit 29.6% in Q2. That is down a touch from 30.9% in Q1, but up from 26.6% a year earlier, and it is the highest second-quarter mark since 2020.

The part that costs you

Rolling negative equity does two things at once. It raises the balance, and it usually pushes you into a longer term to keep the payment tolerable. Both add interest.

Buyers who rolled negative equity into a new loan in Q2 averaged $944 a month. The average new-vehicle buyer paid $777. That is $167 a month, every month, for carrying someone else’s problem — which is to say, your own from three years ago.

Over the life of the loan it gets worse. Edmunds projects those buyers will pay an average of $16,270 in interest, against $9,811 for the average new-vehicle buyer. Both figures are all-time highs.

Run it yourself on round numbers. Take a $35,000 loan at 6.39% — the average new-car rate in Experian’s Q1 2026 data — over 72 months. That is $586.52 a month. Add $6,884 of negative equity to the same loan at the same rate and term and the payment goes to $701.88. You will pay about $8,306 more across those six years to clear $6,884 of old debt.

You are not paying off the old car. You are refinancing it at a worse rate, over a longer term, secured by a vehicle that is already losing value.

Why this keeps happening

Three things compounding.

Long terms. A 72- or 84-month loan builds equity slowly. Depreciation does not wait. For the first several years you are behind, and if you trade during that stretch, you are trading underwater by definition.

Trading too early. The average age of a negative-equity trade-in in Q2 was 4.0 years, a Q2 record, up from 3.8 the year before. Four years into a seven-year loan is the worst possible moment to move.

High starting prices. The average new-vehicle transaction price in June was $49,758. Finance most of that with little down and the gap opens immediately.

What to do instead

• Get your exact payoff before you shop. Call the lender. Not the app estimate, the ten-day payoff figure.
• Get the car appraised somewhere you are not buying. Two or three independent offers. The number a dealer gives you on a trade is negotiable and it is tangled up in the price of the car you are buying — separate the two.
• If you are underwater, seriously consider waiting. Six more months of payments on a car you already own is almost always cheaper than $167 a month for six years.
• If you must move, pay the difference in cash. Writing a check for $6,884 hurts once. Financing it hurts 72 times and costs more.
• Do not let anyone solve this with term length. If the fix for your payment is 84 months, the deal is telling you something.