Negative equity, also known as being “upside-down” on a car loan, happens when you owe more on your car loan than the vehicle is worth. It’s a common issue for car buyers, but with the right strategies, you can avoid falling into this financial pitfall. Here’s how to steer clear of negative equity and make smarter car-buying decisions.
What Is Negative Equity?
Negative equity occurs when the market value of your car is less than the remaining balance on your loan. For example, if your car is worth $20,000 but you still owe $25,000, you’re upside-down by $5,000. This situation can limit your options if you need to sell or trade in the car, as you’ll have to cover the difference out of pocket. Getting rid of a car with negative equity is a stressful task, with only a few options.
That’s why it’s so important to avoid negative equity in the first place. Below are 10 things you can do to prevent negative equity car loans.
How to Avoid Negative Equity on a Car Loan
1. Choose a Shorter Loan Term
Long-term car loans (longer than 60 months) may lower your monthly payments, but they greatly increase the risk of negative equity. Our most recent Negative Equity Report found that drivers with 84-month car loans have a median equity of -$8,485, while those with loans under 72 months in length are in the green.
Cars depreciate quickly, especially in the first few years, while longer loans take more time to build equity. Aim for a loan term of 48-60 months to reduce your chances of being upside-down.
2. Make a Larger Down Payment
A down payment reduces the amount you need to finance, helping you avoid starting your loan in a negative equity position. Experts recommend a down payment of at least 20% of the car’s purchase price for new vehicles and 10% for used cars to avoid being upside-down on your loan when you drive off the lot. If you can’t quite reach that goal, aim for the largest down payment that is reasonable for your budget, or consider a less expensive vehicle.
3. Avoid Overpaying for Add-Ons
Dealerships often try to upsell add-ons like theft protection, cosmetic products, and overpriced warranties and service plans. While some dealership add-ons do add value, rolling their cost into your loan is a problem. This increases your loan-to-value ratio, heightening the risk of negative equity.
Some cars lose value faster than others. Luxury vehicles, electric cars, and niche models often have higher depreciation rates. Research depreciation trends to choose a vehicle that retains its value better over time. Tools like the CarEdge Depreciation Calculator and CarEdge Depreciation Rankings help you prepare.
This is a surefire way to have negative equity for years into the future. Trading in a car with negative equity and rolling the balance into a new loan only compounds the problem. You’re essentially paying for two cars at once, increasing the risk of being upside-down again.
When it comes time to trade-in, cover the difference between your previous car’s value and the remaining loan balance so that you’re not rolling over negative equity into your next purchase. This would be in addition to your down payment, which should be as close to 20% as you can get for a new car, and 10% for a used car.
7. Don’t Overstretch Your Budget
Buy a car that fits your financial situation, not one that stretches it. Luxury features and upgrades are tempting, but they can lead to higher loan amounts and greater depreciation.
8. Make Extra Payments
If your budget allows, make additional payments toward the loan principal. This accelerates equity growth and reduces the impact of depreciation. Even $10 or $20 extra each month will add up over time.
9. Consider GAP Insurance
While GAP insurance doesn’t prevent negative equity, it protects you from financial loss if your car is totaled or stolen. In the event of an accident or theft, GAP insurance covers the difference between your car’s value and the remaining loan balance. Without it, you could actually owe money after an accident that was not your fault.
How is that possible? Without GAP coverage, here’s what could happen with negative equity at the time of an accident or theft: Your auto insurance will pay out the vehicle’s market value at the time of the loss, which may be less than the remaining loan balance. You’d be responsible for paying the difference out of pocket. With GAP Insurance, your GAP coverage would take care of the difference.
Leasing might be a better option if you drive less than 15,000 miles annually and don’t plan to keep the car long-term. It’s also a great option for drivers who love a new car every few years. Leasing eliminates the risk of negative equity since you’re not responsible for the car’s depreciation.
At CarEdge, we’re dedicated to helping car buyers avoid the pitfalls of negative equity. From DIY tools like CarEdge Insights and the new Research Hub, to white-glove, personalized car buying services, we empower you to make informed decisions. Start your journey toward smarter car ownership today with CarEdge.
Being upside-down on a car loan, also known as having negative equity, is a stressful situation. It means you owe more on your car loan than your car’s current market value. This can happen due to factors like rapid depreciation, unfavorable loan terms, or rolling over previous negative equity into your current loan.
For example, if your car is worth $15,000 but you still owe $20,000, you’re upside-down by $5,000. As distressing as negative equity loans can be, it’s not uncommon. CarEdge’s recent Negative Equity Report found that more than one-third of drivers who financed have underwater auto loans.
The good news is that there are several strategies you can use to part ways with your underwater loan as quickly as possible. We’ll explore practical ways to get rid of a car with negative equity, helping you make an informed decision each step of the way.
How to Get Rid of a Car With Negative Equity
Looking to sell your car with negative equity as soon as possible? Here are a few proven strategies to consider, depending on your financial situation and goals.
1. Sell Your Car
If you’re serious about getting rid of your car, it is possible to sell a car with negative equity. If you’re looking to sell your car without trading it in at a car dealership, you’ll need to pay the difference between the sale price and your loan balance to settle your current loan when you sell your car. Check out our Complete Guide to Selling a Car with a Loan.
You’ve got a few options for selling your car, even if you have negative equity.
Private Sale
Selling privately often yields a higher price than trading in at a dealership. However, you’ll need to pay off your existing loan before selling. Most of us don’t have that much cash on hand, but luckily there’s still a way to make it work. If you have great credit and proven income, you may be able to obtain a personal loan to pay off the loan balance. After the car is sold, you can use the proceeds from the sale to immediately pay off your personal loan.
Private sales offer an advantage for older cars or vehicles with higher mileage because you can often command a higher selling price with a private buyer than what a dealership would offer. Remember that dealerships are likely to wholesale these types of vehicles, as they may not be able to retail them on their lot due to higher reconditioning costs and lack of financing options for these vehicles.
Newer late-model, low mile vehicles are difficult to sell to private party buyers because they don’t usually have the cash on hand to make large ticket purchases and will need to rely on financing options that are more readily available at licensed dealerships.
👉 Pro Tip: To determine the selling price for a used vehicle in a private party sale, have an appraisal done in person at Carmax and then add $2,000 to $2,500 to the written offer.
Sell to an Online Buyer
You can sell to online car buyers like Carvana, CarMax, and AutoNation, and Driveway without being required to purchase a vehicle from their store. These large Auto Groups will quickly appraise your vehicle (online or in person) and provide a conditional cash offer. While this option is highly convenient, understand that you’re unlikely to get as much for your car as you would with a private sale. If you’re deeply underwater, online buyers may either require you to pay the difference between the loan balance and sale price, or they may refuse to buy your car. However, this is a solid option for many.
Late-model, low-mileage cars in top condition are attractive to dealerships because they will retail them on their lot and be able to offer financing and other warranty products to maximize their return. However, to secure a fair market value, you need to shop around for the best offer.
When shopping for a replacement vehicle at a licensed dealership, you may have the option to roll any negative equity into the balance of the new loan, provided that the loan-to-value ratio meets the lender’s requirements. ⚠️ Beware,car buyers who roll over negative equity into a new loan are likely to end up in a similar situation in the future.
👉 Pro Tip: It’s fine to mention that you might have a trade-in during the negotiation of your replacement vehicle’s selling price. However, to maximize your trade allowance, avoid sharing detailed information with the dealership until you have 1) obtained an appraisal from a reputable brick-and-mortar store like Carmax, and 2) have first finalized the selling price of the replacement vehicle.
Pros of Selling Your Car:
Frees you from the car and loan and eliminates your financial responsibility.
Private sales can get you more than expected for your car, but it’s usually best to pay off the loan first.
Cons of Selling Your Car:
Selling a car with negative equity requires cash to cover the gap between the sale price and the loan payoff balance.
Trade-ins may lead to higher debt on a new car, and often lead to another underwater loan.
If you can’t afford to pay off the gap between your loan balance and the car’s resale value, but you’re determined to sell, rolling over your loan is an option if you’ll be needing another vehicle. Rolling over negative equity involves trading in your car and adding the remaining loan balance to your next loan. While this solves the immediate issue, it often leads to a cycle of debt. It can be a viable option if your next vehicle is much more affordable (and with more affordable payments) than the car you’re coming out of.
Pros:
Immediate solution to get rid of the car.
May provide access to a more reliable and more affordable vehicle.
Cons:
Increases the loan balance on your next car.
Leads to higher monthly payments and longer debt obligations.
It is very easy to end up in years of additional negative equity when rolling over loans.
3. Not Recommended: Voluntary Repossession
If you’re deeply underwater on your auto loan, must get rid of your car, but can’t afford to pay the difference between the car’s value and the loan balance, surrendering the car to repossession by the lender is an option as a last resort.
You’re probably familiar with involuntary repossession from TV shows. It can get ugly and uncomfortable for all involved. However, voluntary repossession is different. You simply make arrangements to hand over the vehicle to a representative of the lender who holds the lien on your vehicle. You’re not selling the car, so you’re not getting paid. But if you need a way out of your car loan and burdensome payments, it’s an option.
All repossession, including voluntary car repossession, will hurt your credit score. Your score will see a sharp hit immediately, and the even will remain on your credit report for up to 7 years. Make sure you understand how having a lower credit score could impact your future before following through with repossession.
Options For Keeping Your Car and Overcoming Negative Equity
1. Make Extra Payments on Your Loan
Consider paying extra each month toward the principal balance. Most auto loans do not have prepayment penalties in 2025, but it’s best to check with your lender to confirm. Making extra payments reduces your auto loan balance faster, closing the gap between what you owe and your car’s value.
Pros and cons of making extra car payments
Pros:
Reduces the loan balance quickly.
Avoids additional loans or rolling over debt.
Cons:
Requires extra financial resources.
Could take time, depending on the size of the negative equity.
2. Keep It Simple: Pay Off the Loan As Agreed
If you don’t need to sell or trade the car, the simplest option is to keep making payments until the loan is paid off or the car’s value exceeds the loan balance.
Depreciation is the root cause of most cases of negative equity. The good news is that depreciation slows tremendously after the first three years of vehicle ownership. If you can afford to keep making payments with your current loan, you will eventually be out of negative equity, guaranteed.
Pros:
Avoids additional loans or out-of-pocket expenses.
Builds equity over time.
Cons:
It may take years to resolve negative equity.
Depreciation could continue to outpace loan payments for some time.
How CarEdge Can Help
Navigating the complexities of negative equity and car buying doesn’t have to be stressful. With CarEdge’s free tools and expert services, you can make informed decisions:
👉 CarEdge Insights: Get real-time market data to understand your car’s value and local car market trends.
👉 Dealer Invoice Pricing: Negotiate the best price on your next car with this FREE tool.
👉 Car Buying Concierge: Let our experts handle every step of the buying, leasing, or selling process for you. Looking to get the most for your underwater trade-in? We can help!
Ready to take control of your car ownership journey? Visit CarEdge.com and start saving today!
As year-end sales season comes to a close, the state of today’s new car market is coming into focus. According to new numbers from Kelley Blue Book, the average transaction price (ATP) for a new vehicle rose in December 2024, once again approaching all-time highs. The average transaction price for a new car was $49,740 in December 2024, up 1.3% year over year and 1.5% higher than in November. December is often a peak month for new car prices due to the popularity of luxury models during the holiday season. While December 2022 still holds the record for the highest prices ever at $49,958, December 2024 came remarkably close, fueled by strong sales of luxury vehicles.
New Car Price Trends: Big Incentives and Rising Luxury Sales
While new car prices rose, sales incentives remained steady at 8.0% of the transaction price, or approximately $3,958 per vehicle. This marks a 44% increase in incentives compared to a year ago, when new car incentives accounted for just 5.5% of selling price on average.
Incentives were particularly robust in specific segments, with entry-level luxury cars (10.0%), compact SUVs (9.7%), and luxury compact SUVs (9.4%) leading the pack. On the other hand, categories like luxury full-size SUVs, sports cars, and small/mid-size pickup trucks saw the smallest incentives during 2024’s year-end sales.
Certain automakers stood out for their generous incentives. Volkswagen, Ram, and Nissan offered incentives exceeding 13% of the average transaction price, while Toyota, Land Rover, and Porsche offered the least discounts in December.
December also saw strong sales of high-priced vehicles, which typically drive the year-end surge in new car prices. Notably, 5.6% of all new car sales transacted at prices above $80,000. Roughly 84,000 new cars sold above $80,000 in December 2024, the highest volume ever recorded. Full-Size pickup trucks played a significant role in the rising new car prices, with an average transaction price of $64,261.
Mitsubishi, Stellantis, and Volkswagen Offer Glimmer of Hope
Despite the general upward trend, some brands recorded year-over-year price decreases in December 2024. Mitsubishi led the way with prices dropping more than 12% compared to December 2023. Buick and Volkswagen followed with decreases of 7.0% and 6.0%, respectively. Stellantis brands also saw price declines, with Jeep prices falling by 6.3%, Chrysler and Dodge prices down 4.3%, and Ram prices dipping 1.6%.
In contrast, several automakers experienced notable price increases. Cadillac transaction prices rose nearly 13% year-over-year in December. Tesla’s prices climbed 10.5% as Cybertruck sales drove the average higher.
What It Means for Car Buyers in 2025
December’s near-record highs weren’t entirely unexpected. The last month of the year is known as the best time of the year to buy a car, with both year-end incentives and holiday shopping driving the rush to buy. 2025 has arrived, and yet some year-end incentives were extended. January is unlikely to surpass December’s recent high, but with MSRPs creeping ever higher, the all-time record is within reach.
With average new car prices nearing record levels, it’s more important than ever for buyers to approach the market armed with tools to maximize their savings. Whether you’re shopping for a compact SUV, a luxury car, or a full-size truck, understanding the nuances of pricing trends and incentives is key to securing a great deal. That’s where CarEdge Insights comes in.
Shopping new car incentives is more important than ever with rising prices. Each month, we gather all of the best new car deals in one spot, the CarEdge Deal Hub.
In 2025, don’t shop for new cars without Dealer Invoice Pricing in your car buying toolkit!!!
CarEdge now offers Dealer Invoice Pricing, a new FREE tool that helps car buyers negotiate effectively by revealing the true cost of a vehicle to the dealer. If you’re ready to navigate the complexities of the 2025 car market with confidence, explore FREE Dealer Invoice Pricing today.
When it comes to automotive recalls, 2024 had its fair share of surprising twists. Headlines may have crowned Tesla as the automaker with the most recalls last year, but a closer look reveals a different story. While Tesla indeed had the highest total number of recalled vehicles, nearly all were resolved remotely via over-the-air (OTA) updates – leaving only a small fraction requiring a trip to the service center. So, which automakers truly topped the charts for recalls requiring the inconvenience of a dealership visit? Let’s dive in.
Stellantis Takes the Crown for Total Recalls
In 2024, Stellantis unseated Ford as the automaker with the highest number of recalls, issuing 71 in total. Whether it’s a dubious honor or an unflattering superlative, Stellantis has earned its new title: “The Recall King of 2024.”
But when it comes to recalls requiring physical service, Ford still reigns supreme. A whopping 4.8 million Ford vehicles needed in-person repairs last year, cementing its position as the champion of “most inconvenient recalls.” Here’s how the top automakers stacked up for dealership-required recalls:
Stellantis: 71 recalls
Ford: 67 recalls
BMW: 36 recalls
General Motors: 32 recalls
Mercedes-Benz: 28 recalls
The Automakers with the Fewest Recalls in 2024
Not all brands were plagued by recalls last year. Some automakers managed to keep their records (and their customers) squeaky clean. Among mainstream brands, Subaru had the fewest recalls, issuing just one in 2024. Here are the automakers with the fewest dealership-required recalls:
Subaru: 1 recall
Volvo: 3 recalls
Mazda: 8 recalls
Tesla: 8 recalls
Notably, boutique automakers like Rivian, Lucid, Maserati, and Polestar also had minimal recalls, but their significantly lower sales volumes make direct comparisons with major brands difficult.
Most Vehicles Recalled in 2024: Ford Tops the List
When looking at the sheer number of vehicles recalled requiring dealership visits, Ford led the way, with nearly 5 million vehicles affected. Honda and Stellantis were close behind. Here are the leaders in total dealership-required recalls by vehicle count:
Ford: 4.8 million vehicles
Honda: 3.8 million vehicles
Stellantis: 3.8 million vehicles
BMW: 1.8 million vehicles
General Motors: 1.4 million vehicles
On the opposite end of the spectrum, Volvo had the fewest vehicles recalled, with just 304 vehicles needing repairs. Tesla, Porsche, and a few other premium brands also kept recall numbers low.
Here’s a look at the automakers with the most recalls in 2024. All data is sourced from the NHTSA:
Automaker
Recalls Requiring Service Visits
Vehicles Recalled
Stellantis
71
3,770,854
Ford
66
4,776,770
BMW
36
1,832,968
General Motors
32
1,401,427
Mercedes-Benz
28
409,752
Hyundai
23
1,053,441
Jaguar Land Rover
21
123,176
Kia
19
1,220,498
Honda
18
3,790,106
Volkswagen
17
1,003,975
Nissan
17
141,748
Toyota
16
1,221,666
Porsche
13
78,593
Mazda
8
297,941
Tesla
8
39,605
Rivian
5
4,883
Lucid
3
4,031
Volvo
3
304
Polestar
3
19
Subaru
1
118,173
Which Automaker Has the Most Recalls in 2025 So Far?
Just one month into 2025, Tesla has already issued a major recall affecting 240,000 vehicles due to a faulty rearview camera. However, Tesla continues to leverage its OTA update capabilities, with most fixes expected to be completed remotely. For the few vehicles requiring hardware replacement, Tesla will address the issue at service centers.
New Feature: See Recalls, Safety Ratings and More When You Shop
Whether you’re researching recalls, safety ratings, or complaints, CarEdge has you covered. CarEdge Car Search now includes detailed NHTSA safety ratings, recall history, and customer complaints for every vehicle. Find your next car with confidence and make a smarter decision today!
Navigating the SUV market in 2025 can be a challenging endeavor, with fluctuating inventory levels and price trends that can make finding the right deal feel overwhelming. With so many options and so much money on the line, having the right information at your fingertips is invaluable. One crucial metric to consider is Market Day Supply (MDS).
MDS is a key indicator that measures how many days it would take to sell all available inventory at the current sales rate, assuming no additional stock is added. A high MDS would signal an oversupply of SUVs, which can give buyers more leverage to negotiate favorable terms. Conversely, a low MDS indicates limited availability, often leading to tougher negotiations in a seller’s market.
By leveraging CarEdge Insights, we’ve pinpointed which new SUVs are in abundant supply and which ones are harder to find in January 2025. Understanding these trends can empower you to make a more informed decision, whether you’re hunting for a compact crossover or a 3-row SUV.
Why does inventory matter to car buyers?
Inventory influences negotiability. When there’s a glut of cars, dealers will be more inclined to negotiate with you. Slim pickings? Not so much. This valuable insight can give you an edge in your car buying journey, helping you save money and avoid the hassle.
Here are the fastest and slowest-selling SUVs in America right now.
The Top 10 in January 2025: SUVs with the Highest Inventory
In January, a wide range of makes and models are represented in the top 10. What do they have in common? They’re mostly luxury models. The new Audi Q6 e-tron quattro takes the tip spot this month. Volkswagen Group’s EV sales have been slowing as competitors successfully take market share.
Alfa Romeo has two SUVs on the list. Both the Tonale and the Stelvio are slow-sellers in January. Another brand-new EV is high on the list this month – the 2025 Cadillac Escalade EQ. This nearly 9,000 pound EV is GM’s new flagship luxury SUV, but sales are slow to take off. Ford’s soon-to-be-discontinued Escape is the only mainstream model in the top 10 right now.
All of these slow sellers are especially negotiable. Don’t pay a dollar over MSRP for any of these SUVs!
The average selling price for the 10 slowest-selling SUVs is $74,201 in 2025.
Here are the 10 slowest-selling new SUVs, in other words, the models with the most inventory today.
The Bottom 10 in January 2025: SUVs with the Lowest Inventory
On the other side of the coin, these are the fastest-selling SUVs today. This month, we’re seeing the usual suspects on the list. Once again, Toyota dominates. Five of the ten fastest-selling new SUVs are Toyota or Lexus models.
BMW’s X3 and X5 are also quick sellers in January. The Chevrolet Traverse and GMC Yukon are also quick sellers. The Traverse has been revamped and improved for 2025, and it’s flying off the lots. The ultra-luxury Mercedes-Benz G-Class rounds out the bottom 10.
If you’re shopping for any of these new SUVs in 2025, you’ll be up against stiff competition. The average selling price for the 10 fastest-selling SUVs is $75,685. However, with the obvious outlier removed (the G-Class), the average selling price drops to $61,068.
See how much room there is to negotiate with the latest free tool from CarEdge – Dealer Invoice Pricing. Start your negotiations with confidence by using the dealer invoice price as your fair starting point.
States eligibile for below invoice pricing and 100% free delivery:
Alabama, Arkansas, Texas, Oklahoma, Florida, Georgia, Kentucky, Louisiana, Maryland, Delaware, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia.
What if I don’t live in these states? If you're outside these areas, don't worry! We're committed to making sure everyone can enjoy our deals. Although the delivery fee will not be waived, you can still purchase from CarEdge and either pay for shipping or coordinate pickup at a participating dealer.
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