When trade-ins stop covering the loan.
What Changed? | In late 2025, a larger share of buyers arrives at the dealership already underwater, and they're bringing bigger shortfalls with them. That matters because negative equity is one of the few consumer-credit problems that can compound on itself: the gap gets rolled into the next loan, raising the balance, stretching the term, and keeping borrowers trapped in a cycle where equity never rebuilds. | | White House Insider Drops Trump Bombshell | A former advisor to the CIA, the Pentagon and the White House just released… | This shocking new expose of Trump's plans for 2026. | Every American patriot deserves to see this… | Because if this man is right… | 2026 could not only be a milestone for America… | But it could also be the biggest wealth building year of your life. | Click here to see the details because something huge is happening in May. | | The Numbers | 29.3% of trade-ins toward new-vehicle purchases carried negative equity in Q4 2025. The average amount owed on underwater trade-ins hit $7,214 in Q4 2025. 27% of upside-down trade-ins had $10,000+ of negative equity, a record share. 40.7% of new-vehicle purchases involving negative equity were financed with 84-month loans. Wholesale used-vehicle prices (Manheim index) were roughly flat month to month in December 2025 and slightly higher year over year—suggesting depreciation is "normalizing," not rescuing borrowers. Subprime stress is rising: 6.65% of subprime borrowers were at least 60 days delinquent in October 2025.
| | Why It Matters | Negative equity becomes a self-contained stress pocket because it changes the physics of the loan. When the starting balance is inflated (old payoff plus new purchase), the loan-to-value ratio begins high, and the borrower spends more months paying interest before principal meaningfully declines. Longer terms can lower the monthly payment, but they also slow the path back to positive equity—especially if the vehicle depreciates faster than the balance amortizes. | That creates three market implications worth watching. | First, it narrows the "escape hatch" for households under pressure. If trade-in proceeds can't clear the lien, refinancing or downsizing gets harder because lenders and dealers have less room to structure the next deal. | Second, it can feed back into used supply. When owners are stuck, they delay replacement cycles. If they're forced to sell (job loss, repair shock), supply can rise in a less orderly way—pushing down resale values and worsening LTVs for everyone else. | Third, it draws a bright line between prime and subprime outcomes. Prime borrowers typically have more savings buffers and better rates; subprime borrowers are more exposed to higher APRs and delinquency spikes, which can accelerate repossessions and loss severity. | | Takeaway | Negative equity isn't just a consumer budgeting issue—it's a structural feature of today's auto credit cycle. When the trade-in stops being a down payment and starts being a debt transfer, the market can look stable right up until liquidity tightens for the most leveraged borrowers. | — Lauren
Editor, American Ledger | Resources | Edmunds, January 2026
https://www.edmunds.com/car-news/edmunds-q4-2025-insights-report.html | Cox Automotive (Manheim Used Vehicle Value Index), January 2026
https://www.coxautoinc.com/insights-hub/manheim-used-vehicle-value-index-december-2025-trends/ | Reuters (Fitch subprime delinquency), November 2025
https://www.reuters.com/business/autos-transportation/record-number-subprime-borrowers-miss-car-loan-payments-october-data-shows-2025-11-12/ | Federal Reserve (FEDS Notes on delinquency dynamics), November 2025
https://www.federalreserve.gov/econres/notes/feds-notes/a-note-on-recent-dynamics-of-consumer-delinquency-rates-20251124.html | Federal Reserve Bank of New York (Household Debt and Credit), November 2025
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2025Q3 |
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