Imagine buying a new car or truck, financing the purchase, and adding $7,214 to the new loan balance to pay off the amount still owed on your trade-in.
If that sounds like a recipe for financial hardship, it is, but that was the reality for nearly three out of 10 new automobile buyers with a trade-in at the end of 2025, according to the online vehicle-shopping guide Edmunds.
That dollar amount, $7,214, was the average amount owed on trade-ins with upside-down loans, a record high.
If the last car loan was underwater — with more owed than the vehicle was worth — a new loan to both finance an auto purchase and refinance the loan on the trade-in would leave the buyer even deeper underwater. And that raises the risk of always being underwater and debt-burdened due to auto purchases.
Avoiding this nightmarish scenario takes a combination of things. The price of a vehicle and the cost of financing are what drives car loan debt in the first place, A vehicle’s reputation and reliability drive its long-term value, and good maintenance helps get the most years of use while preserving value.
Auto pricing, reliability ratings, resale values and loan rates all can be easily found online, from Consumer Reports, Edmunds, Kelley Blue Book and other reputable choices. Those who do their homework before a vehicle purchase stand the best chance of getting a good vehicle at a fair price, with above-average reliability and a higher resale value years later.
For others an auto purchase can be the start of a debt spiral, particularly for those paying double-digit interest rates, especially if they bought a vehicle with poor reliability, and certainly if they paid too much for it.
I’ve owned more than a dozen cars during my life, four of which were purchased from dealerships (two of them new) and financed with loans.
My first new car, when I was 39, was a Honda Civic. I have never sold or traded a vehicle with an outstanding loan, so I don’t have first-hand experience with that, but I understand cars, debt and math.