More Americans are finding themselves "underwater" on their car loans, owing more on their vehicles than they're worth, according to new data from Edmunds.
In the second quarter of this year, 26% of trade-ins for new vehicle purchases involved negative equity, up from 23.9% in the same period last year. Edmunds reports the average amount of negative equity is $6,754.
Nearly half of new vehicles are bought with a trade-in, and the average trade-in vehicle is just under 4 years old, Edmunds says.
The result, analysts say, is that a growing number of consumers are entering a cycle of debt that can be difficult to escape.
RELATED STORY | Looking for a safe first car? Here are the top picks for teen drivers
"With a growing share of upside-down owners thousands of dollars in the red, many are at risk of getting stuck in a cycle of debt that only grows harder to break over time," said Ivan Drury, Edmunds' director of insights.
To avoid falling into that cycle, experts recommend reviewing your loan payoff amount and comparing it to your vehicle’s current trade-in value before buying a new car.
"If you're thinking about replacing your vehicle but still have an outstanding loan, it's important to understand where you stand financially before making your next move," said Joseph Yoon, Edmunds' consumer insights analyst. "In many cases, holding onto your current car and staying current on payments and maintenance may be the wisest choice."
