Negative Equity on Vehicles is Climbing Again after a Pandemic Slump

Average negative equity on vehicle trade-ins has nearly returned to pre-covid levels.  Rising used vehicle prices in 2020 and 2021 caused average negative equity to fall by a third to a low of $4,000 in late 2021.  As used vehicle prices stabilized in 2022, average negative equity rose to $5,500 according to Edmunds.  The trend will likely continue into the near future as increasing average loan term slow owner’s ability to accrue equity.

Negative equity has a significant impact on what vehicles people are be able to afford since the outstanding balance must be rolled into a new loan or paid when the borrower trades-in their vehicle.

Sources: Bloomberg, Edmunds