29.4% of trade-ins now carry more debt than the car is worth

Nearly three in ten cars traded in at U.S. dealerships last month were worth less than the loans attached to them. J.D. Power and GlobalData’s September 2026 forecast puts the share of retail trade-ins with negative equity at 29.4%, a rise of 0.3 percentage points from September 2025.

Negative equity, sometimes called being underwater, means the owner owes more on the loan than the car would fetch at sale. The 29.4% describes retail trade-ins in a single month, so it counts vehicles that actually came back to a dealer, not every financed car on the road, and it says nothing about owners who keep driving a loan they owe more on than the car is worth.

The September figure in J.D. Power’s forecast

The number sits in the same J.D. Power and GlobalData release that reports a record September monthly payment for new retail buyers. In it, the firm said “in September, 29.4% of trade-ins had negative equity, up 0.3 percentage points from a year ago.” A 0.3-point move is small; the weight of the statistic comes from its level, which means close to three in ten trade-in transactions begin with a deficit that has to be paid off, rolled into the next loan or covered with cash before the new purchase can close.

Several other lines in the release describe the loans that produce such balances. Loans of 84 months or longer reached 13.9% of the total, up 2.0 points, and subprime borrowers made up 11.2% of the market, up 2.2 points. Long terms build equity slowly: a seven-year loan on a car that loses value fastest in its first years leaves the balance above the resale value for longer.

For the dollar size of the typical shortfall behind that share, the available reference is Edmunds’ transaction data, covered below, where the second-quarter share, the average amount owed and the added monthly cost are all reported by that firm’s own analysts.

Edmunds counts a nearly identical share

Edmunds, which tracks the same problem with its own transaction data, reported in July that 29.6% of trade-ins toward new vehicles carried negative equity in the second quarter of 2026, the highest second-quarter share since 2020. Its owners owed an average of $6,884 beyond what their vehicles were worth, a record for any second quarter. The two firms use different samples and periods, so 29.4% and 29.6% are neighbors, not a trend line.

The Edmunds data attaches a price to the problem. Buyers who rolled that debt into a new loan faced average monthly payments of $944 against an industry average of $777, and about $16,270 in lifetime interest against $9,811 for typical buyers. The average underwater trade-in was 4.0 years old, which lines up with cars bought during 2022’s peak-price period. A Carscoops write-up of the same Edmunds report adds that Toyota Tundra owners carried the largest average shortfall of any vehicle studied, at $8,929.

Incentives and rates around the trade-in

Incentives are one lever the industry pulls when buyers arrive with debt, though J.D. Power does not say any of the $3,574 is aimed at negative-equity trade-ins. The firm puts the average incentive at $3,574 per vehicle, up 7.3% from a year earlier and equal to 6.9% of MSRP. Kelley Blue Book’s September 2025 report, by comparison, showed incentive spending of about $3,700, or 7.4% of the average transaction price. The two series differ in sample and method, so the closeness of the dollar figures does not mean incentives are flat.

Interest rates are not the culprit in the September data. J.D. Power’s average new-vehicle loan rate was 6.66%, down 4 basis points and the lowest September since 2022, while the Federal Reserve’s G.19 consumer credit release shows commercial banks charging 7.14% on 60-month new-car loans in the second quarter. The debt problem sits in the balance owed, not in this month’s rate, and a lower rate does little for a buyer whose trade-in has to be paid off before the new loan even starts. Cheaper financing helps the next car’s payment; it does nothing about the thousands of dollars still attached to the last one, which is why the share of underwater trade-ins can rise while average rates fall.

Jessica Caldwell, Edmunds’ head of insights, described the mechanism in the July report: “Buyers who financed at 2022’s peak prices are starting to come back to trade in, and they’re bringing thousands of dollars in old debt with them.” The September release adds the latest share, and 29.4% is the number the next J.D. Power forecast will be measured against.

This article was produced with the assistance of AI and reviewed by Morning Overview editors prior to publication.

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