Pandemic Car Debt Crisis: Why Americans Are Trapped in a $7,200 Negative Equity Spiral

Negative equity in auto loans has surged since the pandemic, leaving many drivers trapped in a financial spiral. Some buyers now owe thousands more on their vehicles than they are worth, creating long-term debt traps that are difficult to escape.

Figures from Edmunds reveal that 31% of borrowers who traded in a vehicle during the first quarter of 2024 had negative equity, averaging $7,200 upside down. This marks a sharp increase from five years ago and forces many shoppers to roll old debt into new loans, paying interest on both the replacement vehicle and past mistakes.

How the Pandemic Car Bubble Created Today’s Debt Crisis

The roots of the problem trace back to 2020 and 2021, when semiconductor shortages crippled new-car supply. Dealer lots emptied, prices skyrocketed, and buyers paid premiums for vehicles that now depreciate like any other. Those inflated pandemic purchases are now resurfacing as trade-ins, leaving owners with underwater loans.

A $40,000 Underwater Trade-In Example

In one extreme case, an Ohio dealer told The Wall Street Journal about a customer who wanted to trade in a Ford F-150 Lightning for a Mercedes-Benz GLE Coupe while owing $87,000 on a truck worth just $47,000 today.

“This is a battle that we’re fighting every day.”
— Doug Horner, Ohio Dealer

To manage monthly payments, many buyers are extending loan terms beyond 70 months—a trend now accounting for nearly one in four new-car purchases. While lower payments may seem helpful today, longer terms slow equity growth and leave owners vulnerable when vehicle values drop.

Mortgage-Level Car Payments and Rising Risks

For borrowers already underwater, the consequences can escalate quickly. Edmunds reports that buyers carrying negative equity financed nearly $56,000 on average for new vehicles in 2024, with monthly payments around $932—comparable to mortgage payments for an asset that spends most of its time parked.

The risks extend beyond financial strain. Studies show that borrowers who roll debt from one vehicle into the next face a significantly higher chance of repossession. Meanwhile, auto loan delinquency rates have climbed to their highest levels since 2010.

Not Everyone Is Struggling—But Many Are

While some owners still have positive trade equity, others are grappling with steep depreciation. For example, the Cadillac Escalade ESV lost over 60% of its value within five years. For a growing segment of Americans, the pandemic-era car craze has become a prolonged financial hangover.