More People Are “Upside Down” On Their Trade-ins Today

This issue is going to get worse, as I talked about on the Car Pro Show last Saturday.  - Jerry Reynolds, Host of the Car Pro Show

As we shared last week, used car prices were down for the third straight month in June. The downward trend is great news if you're buying used,  but not so much so if you have a trade in.

Case in point,  new data from Edmunds indicates that a growing share of car owners are finding themselves upside down on their car loans as used car values continue to normalize.  Edmunds says nearly 1 in 4 Americans who financed a new car purchase with a trade-in during the second quarter were upside down on their loan.  EV owners owed more on average than non-EV owners.

For more on what it means to be "upside down", read Car Pro Show host Jerry Reynolds' article here.

Here's a look at the Edmunds data:

• Nearly 1 in 4 consumers who financed a new vehicle purchase with a trade-in were underwater on their prior car loan. 23.9% of new vehicle sales with a trade-in had negative equity, marking the highest level Edmunds has recorded since Q1 2021 at 31.9%.
• Vehicle owners who are upside down on their auto loans owe more than ever before. The average amount owed on upside-down loans climbed to a record high of $6,255 in Q2 2024, compared to $4,487 in Q2 2022.
• EV owners with negative equity owe more money on their car loans than owners of ICE vehicles.The average amount owed on all EVs traded in for a new vehicle purchase with negative equity climbed to $10,326 in Q2 2024 from $5,469 in Q2 2022. Edmunds data reveals that this is significantly higher than the amount owed on gas-powered trade-ins, which averaged $6,018 during the second quarter of 2024.
  • Edmunds analysts say a contributing factor to this higher dollar amount is the fact that the average trade-in age for EVs is significantly lower than for other vehicles. (The average trade-in age for EVs was 2.1 years compared to 3.7 years for gasoline-powered vehicles in Q2.) 
• The average age for vehicle trade-ins with negative equity is on the climb. The average age for trade-ins with negative equity was 3.7 years old compared to 3.4 years in Q2 2023 and 3.2 years old in Q2 2022. Edmunds analysts note that this trend underscores how consumers who paid inflated prices for new vehicles during the past few years are at extended risk of falling underwater on their car loans as the market continues to normalize — these owners will likely need to hold onto their vehicles for longer to avoid trading in at the steepest point of the depreciation curve. 

“Over the last few years, inflated vehicle trade-in values kept consumers somewhat shielded from falling underwater on their car loans. As the market continues to correct and trade-in values normalize, this protection is falling away, with some vehicle types more affected than others,” said Jessica Caldwell, Edmunds’ head of insights. “It’s not surprising that EV owners are feeling the brunt of accelerated levels of depreciation — this is a fairly standard occurrence for vehicles laden with emerging technology, and incentives on new EVs are only adding to the problem by further depressing used EV values. And this is certainly not making a good case for the fledgling EV market, which is already struggling to gain consumer buy-in.”

Edmunds says its analysts advise that consumers take some simple precautions to avoid falling into the negative equity trap. 

“Negative equity only becomes a problem when you trade in a vehicle too soon,” said Ivan Drury, Edmunds’ director of insights. “If you’re worried about being underwater on your current car loan, your best bet is to keep your vehicle as long as possible and keep up with regular maintenance. And if you’re concerned about the depreciation that comes with buying an EV but still want to go green, consider buying used to offset some of that depreciation, or avoid ownership altogether and lease instead.” 

Edmunds Q2 Negative Equity Data

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