If it feels like everyone you know is stretching to afford their car payment, you’re not imagining it. New data confirms that auto affordability has reached a genuine breaking point in 2026, and a growing share of buyers are financing their way into a hole they can’t easily climb out of.
Here’s what’s happening, why it’s getting worse, and what you can do to avoid becoming part of the statistic.
The Numbers Are Ugly
According to a LendingTree report citing Experian data, the average monthly payment for a new vehicle rose 2.9% from a year ago to a record of $770 in the first quarter of 2026. Lease payments climbed even faster, rising 3.2% to $619 a month, while used car payments increased 1.5% to $531.
It’s not just about the sticker price. Loan terms are stretching longer than ever to make those payments feel manageable. The average term for a new-vehicle loan is now 69.5 months, and among nonprime borrowers, terms often run beyond six years, with the 601-660 credit tier averaging 75.5 months.
Meanwhile, the total pile of auto debt Americans are carrying has ballooned. Nationwide, outstanding auto loan debt totaled $1.685 trillion in the first quarter of 2026, an increase of 57.3% from the first quarter of 2016. That figure now edges out total U.S. student loan debt, making car loans the second-largest category of consumer debt behind mortgages.
Enter Negative Equity: The Real Danger Zone
The scarier trend is what’s happening to trade-ins. When you owe more on your loan than your car is actually worth, you’re “underwater” or “upside down”—and that’s becoming the norm rather than the exception.
Edmunds’ latest data shows nearly 3 in 10 trade-ins toward new vehicles are in an underwater position, the highest Q2 figure since 2020, with 29.6% of trade-ins toward new-vehicle purchases carrying negative equity in Q2. Earlier in the year it was even worse: 30.9% of trade-ins toward new-vehicle purchases carried negative equity in Q1 2026, the highest share of underwater trade-ins for any quarter on record since Q1 2021.
And the amounts owed aren’t small. The average underwater trade-in carried $7,183 in negative equity in Q1 2026, up 42% compared with the same period five years ago. Perhaps most troubling, this isn’t limited to cars that depreciate quickly—Edmunds’ director of insights Ivan Drury noted that some of the biggest dollar losses are showing up on trucks and sedans that traditionally hold their value better than most, calling it “a financing problem, not always a vehicle choice problem.”
When negative equity gets rolled into a new loan, the damage compounds. Buyers who rolled negative equity into a new loan paid an average of $916 per month in Q4 2025—$144 more than the industry average for all new-car buyers. As Edmunds’ Jessica Caldwell put it, car debt isn’t just rising, it’s compounding.
Delinquencies Are Climbing Too
All this debt stress is starting to show up in missed payments. According to data from the Federal Reserve Bank of New York, 90-day-or-more auto loan delinquencies reached 5.60% in the first quarter of 2026, up from 5.21% the prior quarter and well above the long-term average of 3.59%—the highest level since the pandemic-era peak, and closing in on the record set during the 2008-09 financial crisis.
The pain is concentrated among subprime borrowers. Subprime auto loan delinquencies have reached their highest level in 32 years, according to Fitch Ratings data. Prime borrowers with strong credit are still doing fine; it’s lower-credit buyers who are bearing the brunt.
Why This Is Happening
A few forces are colliding at once. Vehicle prices remain historically high even as they’ve leveled off, so buyers who financed vehicles at peak pandemic-era prices are now trading in cars that have depreciated faster than their loan balances have shrunk. Interest rates are also still elevated: the current auto loan interest rate sits at 6.96% for a 60-month new car loan, and used-car buyers with weaker credit can pay dramatically more. Combine higher prices, higher rates, and longer loan terms, and you get a recipe for chronic negative equity.
How to Avoid Going Underwater
- Know your numbers before you shop. Look up your current loan payoff amount and compare it to your car’s real trade-in value so you know exactly where you stand.
- Avoid rolling negative equity into a new loan whenever possible. Paying it off separately, even if it stings, prevents the debt from following you into your next vehicle.
- Be wary of ultra-long loan terms. An 84-month loan may lower your monthly payment, but it also means you’ll owe more than the car is worth for years longer.
- Shop your financing separately from the vehicle. Getting pre-approved through a bank or credit union before you visit the dealership gives you leverage and a real benchmark for comparison.
- Consider holding onto your current car longer. The fastest way to avoid negative equity is to build real equity first by paying down your existing loan before trading in.
The bottom line: car payments hitting record highs isn’t just a headline—it’s a warning sign for anyone about to sign a loan. Going into a purchase with clear eyes about your trade-in value, your loan term, and your true budget is the best defense against becoming another underwater statistic.