In the fourth quarter, 29.3% of Americans who traded a vehicle in toward the purchase of a new unit brought negative equity from their prior auto loan, prolonging a four-year trend, according to Edmunds data.

The average amount owed on prior loans was $7,214. More than one-quarter (27%) of borrowers owed more than $10,000 and 9.2% owed more than $15,000. All are new records.

“Many underwater trade-ins today involve loans originated during the pandemic-era chip shortage, when new-vehicle inventory was scarce and incentives were minimal,” writes Ivan Drury, Edmunds’s director of insights. “With fewer discounts available, many buyers paid closer to or above MSRP and often had less flexibility to choose lower-priced models or trims.”

Drury notes loan balances have outpaced present-day values for many consumers who financed their previous purchase with longer loan terms.

“Many consumers likely operated under the assumption that by the time they were ready to trade in their current vehicle, they would at least break even on their loan, if not have a small amount of positive equity to roll into their next purchase. But the data suggests that assumption is increasingly no longer holding true.”

Read the full report at Edmunds