The defining word for 2026 will be “affordability.” Between the spiraling costs of child care, health care and housing, Americans’ budgets are busting.
Add to that list the financial burden of auto ownership. To keep monthly payments manageable, an increasing share of borrowers are rolling over large amounts of debt from a previous vehicle, stretching new loans out to seven or more years.
Here’s why that’s a problem.
We are seeing the “rent-ification” of car ownership.
When consumers can’t afford to pay off their vehicles before wanting or needing a new one, they drag the old debt into the next loan. This creates a cycle in which buyers accept that they will always have a car payment. If you never zero-out your balance, you aren’t really an owner; you are a long-term renter.
This can diminish your ability to build wealth. Infinity loans make it harder to free up money to save for an emergency, put your kids through college without decades of debt, or amass a decent retirement account.
This erosion of personal net worth is showing up in auto debt data. This week, Edmunds, a car-shopping website, reported a sharp increase in borrowers with negative equity, meaning they owe more on their vehicle than it’s worth. More than 29 percent of trade-ins for new-vehicle purchases had negative equity in the fourth quarter of 2025.
The average amount of these upside-down loans was $7,214, up 5.5 percent from $6,838 a year earlier. More alarmingly, a record-high 27 percent of these drivers owed more than $10,000.
One reason these numbers are so large is the pandemic-era chip shortage, said Joseph Yoon, a consumer insights analyst at Edmunds.
With fewer cars for sale, buyers were paying premium prices, in many cases, well above the manufacturer’s suggested retail price (MSRP). When the market eventually stabilized, they found that the value of their vehicles had declined. Combined with higher borrowing costs, buyers were upside-down on their loans.
The Edmunds report notes that while trading in a vehicle that hasn’t been paid off has long been common, the practice is becoming more expensive because of long-term financing. Nearly 41 percent of people who owe more than their trade-in is worth are financing their new purchases over seven years.
According to another report from Edmunds, more than 20 percent of new-car buyers are locked into monthly payments of $1,000 or more. That’s 1 in 5, an all-time high.
Even used-car buyers are overburdened: 6.3 percent of them face monthly payments of at least $1,000, according to fourth-quarter data.
For most Americans, a car isn’t a luxury but a necessity for getting to work. And the cost of cars just keeps increasing. The average price paid for a new vehicle in December was $50,326, an all-time high, according to a reportreleased this week by Kelley Blue Book.
So, what if you’re underwater and can’t afford to keep the car?
Before you trade in your car, “make more payments so that you’re less underwater so that you carry less of a penalty going into your next vehicle purchase,” Yoon said.
If you’re struggling, call your lender. You may be able to refinance the loan or obtain a loan modification, which is preferable to defaulting or having your car repossessed.
If you can’t rework your auto loan, can you qualify for a personal loan to cover the difference between the resale value of the car and the amount by which you are underwater? The loan would probably have a higher interest rate, but the total debt would be much smaller.
If you’re determined to buy another vehicle and you have negative equity, at least minimize the financial damage.
Don’t trade up. Roll negative equity only into a car that costs significantly less than your current one. If you extend $10,000 of debt from a $60,000 SUV into a $20,000 loan for a used sedan, your total obligation is $30,000. It’s still not an ideal situation, but at least you’ll owe much less money than if you buy another expensive SUV.
If you are extending your debt, do your research and consider a vehicle with a historically slower depreciation rate. This may eventually allow you to catch up on the loan balance.
Escaping the trap of negative equity isn’t easy.
“Rolling debt forward may offer short-term relief, but it often leaves buyers with higher payments, and fewer options the next time they’re in the market,” Edmunds said. “For buyers who are already underwater, the path forward is often less about quick fixes and more about minimizing additional debt.”
If you’re in the market for a car, just keep in mind that you can’t build lasting wealth while spending years and years tethered to a depreciating asset.
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