Summary
- Negative equity is becoming a bigger challenge for consumers as vehicle prices, interest rates, loan terms and insurance costs remain elevated.
- Nearly a third of trade-in customers owe more on their vehicle than it is worth, and industry data suggests that pressure could persist.
- For dealers, the opportunity lies in helping customers understand their equity position and evaluate realistic options while creating a more transparent, disciplined approach to vehicle acquisition.
Negative equity is not a new challenge for automotive retail, but the forces driving it today are different. Rising vehicle prices, higher interest rates, longer loan terms and increasing insurance costs have created a new financial reality for consumers. As a result, more trade-in customers are arriving at dealerships owing significantly more on their vehicles than they did just a few years ago.
In a recent Automotive News mini-webinar, “How to Win Negative Equity Conversations with Customers,” Micah Tindor, AVP of Consumer Vehicle Disposal at Cox Automotive, examines why negative equity is becoming more than a financing issue. It is an affordability challenge that increasingly influences the customer experience and vehicle acquisition outcomes.
Today, 31 percent of trade-in customers have negative equity,¹ carrying an average balance of more than $7,100 above their vehicle’s market value.²
With such a large financial gap, trading in a vehicle and purchasing another one becomes a broader affordability decision. And for some consumers, that decision can affect their financial position over more than one vehicle lifecycle.
Negative Equity Is a Symptom of a Bigger Affordability Challenge
Consumer costs have been rising across the board, and vehicle ownership is no exception. Today’s automotive consumers face a combination of affordability pressures:
- Since 2020, the average cost of a new vehicle has increased by $11,000.³
- Interest rates remain elevated, with the average new-car APR around 6.9 percent.⁴
- Auto loans continue to have historically long terms, with the average loan term just under six years.⁵
- Over the last two years, auto insurance rates have increased by 24 percent,⁶ with new-car owners paying an average of $224 per month for insurance.⁷
Negative equity is not solely a trade-in or financing issue. It is a symptom of a broader affordability challenge that could persist…
Why Negative Equity Pressure Could Persist
Several market factors suggest negative equity could remain a meaningful challenge for dealers and consumers.
Many consumers who purchased vehicles during the peak-pricing years have not yet returned to the market as trade-in customers. Vehicles are currently an average of 10 years old at disposal,¹⁰ so the market conditions that shaped some owners’ equity positions are still playing out.
In addition, 54 percent of Q4 2024 loan originations were financed at 120 percent of vehicle value.¹¹ Dealers should be prepared for conversations about value, payoff amounts and negative equity to become an increasingly common part of the trade-in process.
Why This Creates Both Challenges and Opportunities for Dealers
Although consumer sentiment remains low,¹² vehicle replacement needs have not disappeared. Consumers with negative equity will still need to replace their vehicles. Their transportation needs may change. Their families may grow. A vehicle may become less reliable, or a repair may no longer make financial sense.
Kelley Blue Book data shows that 6.5 million consumers look up their vehicle value each month in anticipation of a potential trade-in.¹³ Understanding a vehicle’s current market value is often the first step toward helping customers evaluate their equity position and consider realistic trade-in options.
This creates an important role for dealers.
Compared with a private-party transaction, a dealership may be better positioned to help consumers understand their equity position, evaluate available options, and find a replacement vehicle that better aligns with their budget.
This also creates an opportunity to move beyond transactional trade-in discussions. Consumers facing affordability challenges often need clear information and practical guidance as much as they need a vehicle.
Dealers can provide meaningful support by:
- Creating a disciplined, repeatable framework for negative equity conversations across the dealership.
- Leading with empathy to build trust during financially challenging trade-in discussions.
- Educating customers early about the factors that influence equity, affordability and future trade-in flexibility.
- Helping customers evaluate realistic options rather than pushing a one-size-fits-all solution.
- Using transparent valuation data to explain the “because” behind every offer and reduce customer uncertainty.
Dealers cannot eliminate every customer’s equity gap. They can, however, make the gap easier to understand and help customers evaluate the available paths forward.
This approach should extend beyond the sales floor. Service departments may have an especially important role to play. Research shows that consumers begin seriously considering a trade-in when repair estimates approach $3,100.¹⁴ At that point, a customer may be weighing the cost of repairing the current vehicle against the possibility of replacing it.
Dealers with connected service and acquisition strategies can help customers compare those options when the decision is especially relevant. By bringing together service information, a trustworthy vehicle valuation and a clear explanation of the customer’s equity position, dealers can support a better-informed decision without turning every service interaction into a sales conversation.
The Path Forward
Negative equity is not going to disappear overnight, and many consumers are still working through the effects of elevated vehicle prices, borrowing costs and ownership expenses.
While dealers cannot change those market conditions, they can change their in-dealership process and the quality of the conversation when working with impacted consumers.
By leading with empathy and explaining the “because” behind every offer, dealerships can help consumers make better-informed decisions. They can also create a more disciplined, repeatable appraisal and acquisition path that builds customer trust and helps source quality inventory.
For additional insights on helping consumers navigate negative equity and building more effective acquisition conversations, watch Micah Tindor’s Automotive News mini-webinar, “How to Win Negative Equity Conversations with Customers.”
To learn more about how Kelley Blue Book Instant Cash Offer can help, take our self-guided demo.
Sources
- Edmunds Q2 2026 Vehicle Transaction Data.
- Edmunds Q2 2026 Vehicle Transaction Data.
- Data from automotive research firm Edmunds shows the average transaction price of a new vehicle reached $48,402 in 2025, up from $37,310 in 2019. That represents an increase of more than $11,000, or roughly 30 percent, reflecting both inflation and a shift toward more expensive vehicles.
- Bankrate Auto Loan Rate Forecast for 2026.
- Experian data, Q4 2025.
- Insurify 2026 Guide.
- Bankrate Auto Loan Rate Forecast for 2026.
- According to Experian’s Q3 2025 State of the Automotive Finance Market report, the average monthly payment for a new-car loan reached $748, while general nationwide auto loan payments averaged $687. More than one in six new-car buyers faced monthly financing costs exceeding $1,000.
- According to Edmunds Vehicle Transaction Data, average negative equity increased from $5,063 in 2020 to $7,183 in Q1 2026, an increase of approximately 42 percent.
- Cox Automotive 2026 Fixed Ops and Ownership Study.
- Experian Q4 2024 State of the Automotive Finance Market report.
- University of Michigan Consumer Sentiment Index, June 2026.
- Kelley Blue Book data.
- Cox Automotive 2026 Fixed Ops and Ownership Study.
