Being upside down (or underwater) on a car loan means you owe more than the car is worth today. That gap is called negative equity, and it matters most when you want to sell, trade in or get out of the payment, because the sale won’t cover the loan. Your main options are to keep paying until the gap closes, pay extra toward the principal, refinance if the numbers truly help, sell and cover the difference, or have someone take over the payments. Here’s how each works, with a simple example.
You’re not alone
Owing more than your car is worth has become normal, not rare. Edmunds reported that 29.6% of trade-ins toward a new car had negative equity in the second quarter of 2026, and the average amount owed beyond the car’s value was $6,884. Earlier in 2026, an Edmunds analyst told Arizona’s Family (also carried by KOLD) that the first-quarter numbers were the highest Edmunds had seen for a first quarter: 30.9% of trade-ins underwater by an average of $7,183. The Consumer Financial Protection Bureau has studied negative equity in auto lending because rolling an old balance into a new loan can push people further underwater. If you’re here, you didn’t do something unusual. You landed where millions of drivers are, and there are ways out.
How people end up upside down
- Cars lose value fastest in the first years, while early payments go heavily toward interest, so the balance drops more slowly than the value.
- Long loan terms. Edmunds found that loans of 84 months or longer made up a record 25.5% of new-car financing in the third quarter of 2026. Longer terms keep the balance high for longer.
- Little or no money down, or taxes, fees and add-ons financed into the loan.
- Negative equity rolled over from a previous car, so the new loan starts out already behind.
An example (illustrative numbers only)
- Payoff amount on the loan: $22,000
- What the car would sell for today: $16,000
- Negative equity: $22,000 − $16,000 = $6,000
In this example, if you trade the car in, the dealer pays the lender $16,000 and $6,000 is still owed. You either pay it in cash or it gets added to the next loan, so you start the next car $6,000 behind before that car loses any value of its own. If you sell it yourself for $16,000, you’d need $6,000 from somewhere to pay off the loan and release the lien. And if you give the car back, the FTC explains that you’re still responsible for paying the difference between what you owe and what the car sells for, plus fees. That’s why the gap has to be part of every decision.
To find your own number: ask your lender for a payoff amount, look up what your car would sell for (check more than one source and be honest about mileage and condition), and subtract.
Your options when you’re underwater
- Keep the car and keep payingIf the payment fits and the car is reliable, time is on your side: every payment shrinks the balance, and the gap usually narrows. This is often the cheapest path when it’s possible.
- Pay extra toward the principalEven small extra payments can close the gap faster. Ask your lender how to make sure extra money goes to principal, not to next month’s payment.
- Refinance, if it really helpsA refinance replaces your loan with a new one. The CFPB notes a longer term may lower the payment but increase the total interest. Refinancing doesn’t erase negative equity, so compare the total cost, not just the monthly payment.
- Sell and cover the differenceIf you need out and can cover the gap, selling ends the loan cleanly. The CFPB suggests checking your contract for a prepayment penalty first.
- Trade in and roll it over, with eyes openThis gets you a different car but carries the gap forward. Edmunds reported the average payment on new-car loans with negative equity on the trade-in reached $944 a month in the second quarter of 2026.
- Have someone take over the paymentsWhen you can’t keep the payment and can’t cover the gap, a take-over under a written agreement may be worth a look. ReDrive’s Take Over Payments program was built for upside-down car loans.
Negative equity doesn’t disappear when you trade, refinance or hand back the keys. The question is who carries it, and for how long.
Refinance or buyout when you’re upside down?
People who are underwater often search for a way to “refinance an upside-down car loan” or for a “car loan buyout.” A refinance keeps you as the borrower on a new loan, and the gap usually comes along with it. A buyout means someone pays off your current lender directly and you move on under a new written agreement or a sale. A take-over means someone else takes on the payments, ideally with your lender’s approval or under a written agreement. If you also carry a title loan, our title loan refinance & buyout guide explains that side.
Where ReDrive fits
If you’re upside down and the payment no longer fits, you don’t have to figure it out alone. ReDrive can look at taking over the payments on an unaffordable car loan, especially when you owe more than the car is worth. Our team in Plano, TX works with drivers across Texas, with a focus on Dallas-Fort Worth. You share your loan and car details, we review your situation, and you get your options in writing, with no obligation. If it’s a fit, you work with ReDrive under a written agreement that explains everything before you sign. Bring your payoff amount and vehicle details, and see what options you may have with ReDrive.
Quick answers
What does it mean to be upside down on a car loan?
It means you owe more on the loan than the car is worth today. The difference is called negative equity. If you sell or trade in the car, the sale won’t fully pay off the loan, so the remaining amount has to be paid in cash or carried into a new loan.
Can I trade in a car with negative equity?
Usually yes, but the amount you still owe is typically added to your next loan. Edmunds reported the average payment on new-car loans with negative equity on the trade-in was $944 a month in the second quarter of 2026. Ask to see the full numbers before you sign.
Can I refinance an upside-down car loan?
Sometimes. A refinance is a new loan that pays off the old one, and a lower rate or longer term may lower the payment, but a longer term can increase the total interest. Refinancing doesn’t erase negative equity, so compare the total cost, not just the monthly payment.
Can someone take over or buy out an upside-down car loan?
It’s possible. A buyout means someone pays off your lender directly, and a take-over means someone else takes on the payments, ideally with lender approval or under a written agreement. ReDrive’s Take Over Payments program looks at upside-down car loans and gives you your options in writing, with no obligation.
Thinking about a title loan refinance or buyout?
A lot of people in this spot start searching for a way to refinance their title loan, or for a company that will do a title loan buyout. A refinance usually means another title lender pays off your loan and writes you a new one. A buyout means someone else pays your current title lender directly, so that loan gets closed out.
With ReDrive’s title loan refinance & buyout, we pay your title lender directly, and you work with ReDrive under a written agreement with a clear end date. To compare a refinance, a buyout and your other choices side by side, read Title loan buyout & refinance explained, or see what options you may have with ReDrive below.
Owe more than the car is worth? Let’s look at your options.
Every situation is different. Tell us a little about your loan and your car, and we’ll walk you through the options you may have with ReDrive. No cost, no obligation, no pressure.
Explore options with ReDrive →Or call us: (817) 382-2093 · ReDrive Solutions, Plano, TX
This article is general information, not financial or legal advice. Programs, rates, and eligibility vary by lender and change over time. Always confirm the full terms in writing before you sign anything.