Car Buyers Who Paid Sky-High Prices During COVID Are Now Getting Crushed at Trade-In Time

Remember when car dealers were charging thousands over sticker price during the pandemic, and customers had no choice but to pay up or walk? That bill is coming due. A growing number of people who bought vehicles at inflated prices during the COVID shortage are now trying to trade them in, only to find they owe far more than the car is worth.

Finance departments at dealerships are struggling to get these buyers approved for new loans, because roughly 30% of them are carrying negative equity, meaning their loan balance exceeds the vehicle’s trade-in value.

Edmunds flagged this trend earlier this year when more than a quarter of buyers were underwater on their previous loan. By the second quarter, that figure had climbed to 30%, according to Automotive News, and it’s holding steady. The problem feeds on itself: rolling that negative balance into a new purchase means the buyer is effectively paying for two cars at once, with only one to drive.

The average monthly payment for someone carrying negative equity now sits at $944, $167 more than the typical buyer. And that’s assuming they can get financing at all, which is becoming tougher as lenders tighten their standards.

What’s especially troubling is that this isn’t happening to people who bought flashy luxury models that depreciate fast. Instead, it’s hitting buyers of vehicles known for holding their value. Toyota Tundra. Ford F-150, Jeep Wrangler, and Honda CR-V. The problem wasn’t the car choice, analysts say; it was the financing.

Higher sticker prices, dealer markups, and more expensive credit all pushed loan amounts into dangerous territory. Edmunds reports the average underwater buyer carried nearly $7,000 in negative equity at trade-in time and paid roughly $6,500 more in interest over the life of the loan than a typical buyer, a 60% premium.

All for the privilege of starting the cycle over in a few years.