If you have a car loan, we have a math assignment for you. 

Find an online car value calculator. Figure out how much your vehicle is worth. Then, look up your loan balance, and compare that number to your car’s value. You may be in for a shock. 

Nearly one-third of auto loans have negative equity, a recent survey found. That means the loan balance is more than the car is worth. In lending-industry parlance, the loan is underwater. 

Being underwater, or upside down, on a car loan is not so unusual. Vehicles tend to depreciate over time. Anyone with an auto loan is generally racing against the asset’s dwindling value, hoping to pay down the balance faster than the car erodes in worth.  

Right now, however, is a particularly bad time to have a car loan.  

Find the loan that's right for you: Best personal loans

Car values are falling. Interest rates are rising.

Borrowing costs are rising. The average interest rate on a 60-month new car loan is 8.4%, as of August, up from 4.6% three years earlier, according to federal data.  

Meanwhile, car values are falling. Used vehicle prices dropped about 20% between February 2022 and August 2024, based on federal data for urban consumers.  

For anyone who took out a car loan in the last few years, those crisscrossing trends could spell trouble.  

A September survey by CarEdge, the automobile marketplace, found that 31% of car loans were underwater. For vehicles purchased since 2022, the share of upside-down loans rises to 39%. 

Another recent survey, by the car-comparison site Edmunds, found that the average trade-in customer with an underwater loan owed $6,458, a record sum. One-fifth of those consumers owed $10,000 or more. 

“What’s really scary is the dollar amount that they’re upside-down,” said Ivan Drury, director of insights at Edmunds. “It’s getting ugly quick.” 

Drivers overestimate what their car is worth

The CarEdge survey found another worrying trend: Most drivers overestimate what their vehicle is worth. That disconnect “can lead to unpleasant surprises,” the survey found, when someone goes to sell a vehicle or trade it in. 

“A lot of people can drive around with a car that is underwater and not be aware of it, not care,” said Kimberly Palmer, personal finance expert at NerdWallet. “But there are situations where it becomes very important.” 

Negative equity on paper becomes very real if you need a new car. Maybe your vehicle gets totaled. Maybe the car winds up literally underwater. In a more common scenario, the vehicle simply breaks down. 

“You still owe the bank that money,” Palmer said. “You still have to make those payments.” 

Now, you face an unwelcome choice. You can continue to make your loan payments until the balance is paid off. You can write a lump-sum check, repaying the debt all at once. Or, you can try to roll the balance into a new loan. 

Before the pandemic, Drury said, roughly one-third of customers who traded in vehicles had negative equity.  

“They’d take that debt, and they’d just dump it into a new car,” he said. 

Those customers would borrow enough money to pay off their old car and finance a new one. That wasn’t such a difficult feat in the pre-pandemic era: Car prices and interest rates were lower.  

The average new car sells for $48,623

In 2024, the average new car sells for $48,623, according to Kelley Blue Book. The average monthly new car payment is $734, NerdWallet reports.  

Customers are borrowing more money and taking loans with longer terms. The longer the term, the harder it is to keep pace with the diminishing value of the car, because you’re paying down the balance more slowly.  

If you roll negative equity into a new car loan, “this will result in being upside down longer on your new loan,” said David Bennett, senior automotive manager at AAA. 

Trade in a car with negative equity, and you may also face pressure to buy a more expensive car, leaving you with loan payments that are higher than ever.  

Example:  

If you have $10,000 in negative equity and you buy a new car for $25,000, financing the entire sum, you are borrowing $35,000, which is 40% more than the new car is worth.  

Most lenders, Drury said, won’t want to lend that much more than the new car’s value.  

If you choose a $50,000 car, you are borrowing $60,000, which is 120% of the new car’s value. A lender is more likely to find that ratio acceptable. 

What to do if you're underwater

Let’s say you consulted a car value calculator and learned you are underwater on your loan. What should you do?  

Here are some tips from the experts. 

Make bigger payments 

The faster you pay down your loan balance, the sooner you will achieve positive equity. If you can afford it, consider rounding up your monthly payment: say, from $734 to $800.  

Refinance 

Interest rates are high, so searching for a refi at a much lower rate “is probably not going to work,” Drury said. 

If your budget allows, however, you could refinance with a shorter-term loan. That will mean higher payments, but you will pay down the balance more quickly. 

Another option: Find a dealership with a low promotional interest rate on a new car, ideally a bargain model. If you trade in a negative-equity vehicle, you could emerge with a much lower interest rate – but on a much larger loan.  

It’s a risky move: You still need to make the monthly payments.  

“You have to think about what you can afford,” Bennett said. 

More:So you're upside down on your car loan. You're not alone.

Ride it out 

The best way out of an underwater car loan, according to everyone who spoke to USA TODAY, is to do nothing: Keep your car, and keep making payments on the loan. 

Auto lenders front-load the interest. The longer you pay the loan, the more each payment will chip away at the principal. Eventually, your negative equity will melt away. 

“The longer you keep it, the better things get,” Drury said.