Car Debt Is Crushing American Buyers

• Americans with negative equity were $7,214 underwater, on average, in Q4 2025, per Edmunds.
• That’s an all-time record, and a shocking 29.3% of buyers with trade-ins have negative equity.
• Dealers and automakers are partially responsible, but so too are consumers that demand bigger, more feature-packed cars despite not really being able to afford them.

I was three weeks into my job selling Chevys, and already I knew I was lousy at it. I was working 70 hours a week, cold calling everyone, and still getting nowhere. I’m not good at putting on the pressure. But a slam-dunk walked in the door. A customer had a mildly used Silverado, wanted a new one, and took almost no convincing. We got all the way to finance, and I could feel the hope bubbling. Then the finance manager walked out.

Unfortunately, he said, we weren’t going to make this work. The guy owed $40,000 on a truck that was worth around $25,000, had a 430 credit score, and no cash to throw on the pile. He was deeply underwater, and no one else in the showroom was surprised.

It was a formative memory for me, at 18, realizing how deeply predatory this industry can be. And in the 10 years since, it’s only gotten worse. Edmunds reported in January that 29.3% of buyers trading in a car towards a new vehicle in the fourth quarter of 2025 had negative equity. The average buyer with negative equity owed $7,214 more than their car was worth, an all-time high. 

Yikes. 

Dealers are even starting to feel it. In an interview with Automotive News, California New Car Dealers Association President Brian Mass said the problem was becoming unmanageable.

“It’s pretty hard to put a deal together if they’re coming with several thousand dollars that they owe on their current vehicle,” he said. “Negative equity can be managed, up to a point. And at some point, if it’s too large, even the most creative dealer can’t figure out a way to help their customer get into a new car.”

I’m going to zoom in on two of those words: “creative” and “help.” I think they signify what’s propelling this issue, and why it’s so ubiquitous. I find there’s a fundamental mismatch between what customers and dealers expect when it comes to these deals. In my conversations back at Pat O’Brien Chevrolet (RIP) and with buyers today, I’ve noticed that many assume that if a dealer finance offer find them a bank that will approve the loan, they can “afford” the car. They outsource that responsibility to the dealer.

The dealer, meanwhile, likes to be “creative” and “help” consumers get financed, even if the deal is clearly ruinous to them. I had seen it happen in slow motion, as the finance manager at my dealership called a half dozen banks trying to make something work. Dealers understandably don’t consider the long-term implications on people’s finances as their responsibility; they exist to sell cars, plain and simple, and customers should know that. 

But as the crisis has dragged on, it’s certainly become harder to absolve the dealers completely. When 30% of your trade-in customers haven’t even gotten their heads above water on their last loan, that should trigger some alarm bells. And remember, that $7,214 in negative equity doesn’t represent all potential customers with negative equity, it only includes those who were able to make a successful deal. Those too underwater to even get approved—as my customer was—are the biggest concern.

Automakers and dealers seem to finally be waking up to the issue. Blame it on aggressive marketing, our general culture of instant gratification, or the ever-higher average transaction prices that push normal cars out of reach for normal Americans. However you slice it, it’s becoming unsustainable. And so I’m finally starting to hear automakers and dealers talk seriously about affordability. 

That’s not because they’re altruistic, clearly. It’s because Americans have been pushed as far as they can go. If you want more sales and profit, you’re not going to be able to drive those gains with 12-year loans and a constant cycle of negative equity. At some point, you have to start putting customers in cars they can afford.

Customers, too, have to adjust their expectations. It’s no coincidence that average transaction prices have climbed as American’s have increasingly opted for larger vehicles and demanded more standard features. If you say you want an affordable car, but require three rows of seats, all-wheel-drive, a cutting-edge electric drivetrain, and hands-free highway driving, you’re exactly the type of buyer that “creative” dealers prey on. If you want luxury SUV features on a Corolla budget, while carrying negative equity, an 84-month loan is the only way a dealer can “help” you.

The point is, while dealers and automakers have been pushing us towards cars we can’t afford, most of us have let ourselves be pushed. We want more than ever. It shouldn’t surprise us that we’re paying more than ever, too. If we want to pay less, we may have to accept less, too.

Contact the author: Mack.Hogan@insideevs.com