'Don't Fall For The Pitch' Suze Orman Reveals The No. 1 Car Loan Mistake

Buying a car in today's economic environment can feel more difficult than ever. In addition to the fact new cars continue to get more and more pricey, there is also the issue of high interest rates on car loans and ever-increasing car insurance rates. All told, the financial burden of getting a car loan in 2026 can feel overwhelming for many consumers. Making matters worse is the uptick in what are known as underwater loans –- and subsequent underwater trade-ins.

At its simplest, an underwater car loan is when you owe more on a vehicle than its current market value. This is also known as negative equity, and while this can be tricky enough to navigate on its own, consumers are increasingly compounding the issue by then trading in their negative equity vehicles on new vehicles -– thereby carrying debt into their next car purchase. While this consumer behavior is not new, the rate at which it is happening today is a troubling element of the current consumer market. Plus, as financial advisor and author, Suze Orman, explained on her website, "Don't fall for the pitch to trade in a car with negative equity. Just because it's doable, doesn't mean it is smart."

According to Edmunds, in Q1 2026, 30.9% of all trade-ins on new vehicles had negative equity. This was the highest share of negative equity trade-ins since Q1 2021. As tempting as it might be to have the latest car model out there, it's important to realize that cars are, at their core, not a good investment due to depreciation — and compounding your debts likely won't end well.

Per Edmunds, the average amount still owed on negative equity trade-ins in Q1 2026 was $7,183 –- only slightly down from Q4 2025's record-high average of $7,214. Even worse, 26% of these vehicles carried at least $10,000 worth of negative equity, with 9.3% exceeding $15,000. As Suze Orman put it, "The fact that so many people buying new cars are trading in a car with negative equity is doubling down on a financial mistake. The goal is to get a car loan paid off ASAP and drive it for years without owing a payment." While you might question the strategy of paying off a car loan early, it is generally smart financial practice to ensure you fully pay off your debts before taking on even more.

As Orman explained, "When you buy a new car and roll over negative equity for an old car you are taking on more debt and extending the time you will be repaying the loan." This can cost you in ways you might not even realize. For starters, you are losing any trade-in value you might have received towards your new car. Plus, many buyers are rolling this pre-existing debt into longer loan terms in order to help keep their monthly payments more affordable. However, long loan terms like a 96-month car loan are a bad idea for most consumers. Per Edmunds, Q1 2026 buyers using a negative equity trade-in vehicle ended up having to finance $55,970, on average. This was $12,071 more than the norm — and can quickly fuel a negative equity debt cycle that is difficult to break free from.