What which means when shopping for a brand new automobile

Extra drivers throughout the nation are “underwater” or “the wrong way up” on their auto loans — which means they owe more cash than the automotive is value. That is costing them when it comes time to purchase a brand new automotive.

About 26.6% of trade-ins towards new automotive purchases had unfavorable fairness within the second quarter of 2025, in accordance to Edmunds, an auto web site. That determine is up barely from 26.1% within the first quarter of the 12 months, and the best it has been within the final 4 years, stated Ivan Drury, the director of insights at Edmunds.

The final time it was greater was within the first quarter of 2021, when 31.9% of recent automotive trade-ins had been underwater, in line with the report.

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Such drivers usually are not underwater by insignificant quantities. The typical quantity owed on upside-down loans within the second quarter was $6,754, down barely from the prior quarter’s $6,880, Edmunds discovered.

“It is a staggering determine to have a look at,” stated Drury.

Drivers buying and selling in an upside-down automotive might want to give you money to pay that stability, or roll it into their new mortgage, consultants say.

To make sure, it is commonplace to see underwater auto loans.

It’s possible you’ll already be underwater in your mortgage from the second you drive out of the seller with the brand new automobile, as automobiles are depreciating property, stated Brian Moody, senior employees author at Autotrader and Kelley Blue E book.

However different decisions you make, similar to taking up an extended mortgage time period or making a smaller down fee, can exacerbate the difficulty.

Nonetheless, lengthening an auto mortgage’s phrases is “the one factor customers can do to lower prices,” stated Drury.

It has gotten to the purpose the place 84-month auto loans have turn into “more and more frequent,” he stated. Within the second quarter of 2025, 84-month auto loans comprised of 21.6% of recent auto loans, up from 19.2% the quarter prior, in line with Edmunds knowledge offered to CNBC.

To check, 72-month loans had been at 36.1% within the second quarter, down from 38.6% in the identical timeframe, in line with the information.

It is not an issue to have unfavorable fairness once you nonetheless personal and drive the automotive, Moody stated. It turns into a problem when it’s essential promote or commerce it in.

Damaging fairness can be problematic in case your automobile is totaled. After an accident, your insurer will sometimes pay the precise money worth of the automotive. If that is lower than what you owe in your mortgage, you are liable for the remaining value.

Preserve your present automobile should you can, consultants say, to keep away from having to roll that debt into a brand new mortgage or give you money to cowl it.

In the event you actually want a brand new automotive, it is vital to do preliminary analysis earlier than you even stroll right into a automotive dealership. In case you have unfavorable fairness from a previous auto mortgage, rolling it over to a lower-interest automotive mortgage might help you save on borrowing prices, Drury stated.

First, perceive what your credit score rating is, stated Moody. Typically talking, the greater your rating, the higher the rate of interest and mortgage phrases lenders give you.

“Understanding your credit score rating and realizing what rate of interest you qualify for is vital to know upfront,” Moody stated.

Attempt to get pre-approved for various auto loans throughout a number of banks or lenders, stated Drury. This helps you get a greater gauge of the phrases you possibly can qualify for and distinguish the most effective gives.

When you’re prepared to purchase, the auto seller may both attempt to match the offers you have got or provide higher financing choices, he stated.

If you are going to be underwater on that new mortgage — say, since you’re rolling in debt out of your prior automobile or taking up a protracted mortgage time period — ask your auto seller or insurer about assured asset safety insurance coverage, also referred to as hole insurance coverage, stated Moody.

“Hole insurance coverage covers the distinction between what the automobile is value, and what’s owed on it” in case your automobile is in an accident, in accordance to the Insurance coverage Info Institute, an trade group.

In most insurance policies, including hole insurance coverage alongside collision and complete protection can value a further $20 per 12 months to the annual premium, in line with III.