Nearly 1 in 4 Americans Who Financed a New Car Purchase with a Trade-in During Q2 Were Upside Down on Their Loan, According to Edmunds
10 July 2024 - 11:03PM
A growing share of car owners are finding themselves upside down on
their car loans as used car values continue to normalize. According
to Q2 2024 data from the car shopping experts at Edmunds:
- 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 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
Year |
Share of New Vehicles Purchased with a
Trade-in |
Share of Trade-ins with Negative Equity |
Average Amount of Negative Equity |
Average Trade-in Age (Years) |
Q2
2019 |
44.6% |
34.6% |
-$5,317 |
3.8 |
Q2
2020 |
45.6% |
37.2% |
-$5,845 |
3.9 |
Q2
2021 |
50.8% |
23.1% |
-$4,246 |
3.6 |
Q2
2022 |
46.8% |
14.7% |
-$4,487 |
3.2 |
Q2
2023 |
46.2% |
17.3% |
-$5,543 |
3.4 |
Q2
2024 |
44.8% |
23.9% |
-$6,255 |
3.7 |
About EdmundsEdmunds guides car shoppers online
from research to purchase. With in-depth reviews of every new
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wealth of consumer and automotive market insights, Edmunds helps
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Talia James-Armand
Edmunds
310-491-8738
pr@edmunds.com