How to get out of an upside-down car loan

As car prices and interest rates climb, a growing share of Americans owe more on their car than it's actually worth — a situation referred to as an "upside-down" or "underwater" car loan . In the final quarter of 2025, roughly 30% of trade-ins came with negative equity, according to car shopping site Edmunds . The average amount owed hit an all-time high of $7,214. Having a trade-in with negative equity means you'll have to pay your balance out of pocket or roll it into a new loan. Not only will you start out underwater on day one, but you'll face higher payments and more interest over time. "The biggest risk is you never get out of it, and it just keeps [compounding]," said Jessica Caldwell, director of insight at Edmunds. "You could be buying a $30,000 vehicle, but because you're rolling over debt from your previous loan, you're now paying $37,000." Some buyers keep repeating the process, Caldwell told CNBC Select. "Then, one day, you find yourself paying $50,000 for a Toyota Camry." Find auto loan refinancing that works for you What is an upside-down car loan? Unlike homes, cars don't generally gain value as they get older. A new car loses up to 20% of its value in just its first year, "especially luxury vehicles, electric vehicles or anything with more technology, features and creature comforts," Caldwell said. Your loan is considered upside down when you owe more on your vehicle than its current market value. …