31% Underwater: The Data Behind the Next Wave of Repossessions
A lot of people are still trying to describe today’s economy with broad labels like “strong” or “cooling,” but on the ground—especially in auto finance and repossession—it looks much more like a split. A K-shaped economy isn’t theoretical. It’s playing out in real time, and the data coming out of the auto market helps explain exactly why.
A K-shaped period is when one segment of the population continues to move upward while another slides in the opposite direction. Right now, higher-income consumers and well-positioned borrowers are holding steady. But underneath that, a growing portion of borrowers are dealing with the cumulative effects of higher prices, expensive credit, and long-term debt structures that are starting to break down.
Nowhere is that more visible than in auto loans.
The average price of a new vehicle is now approaching $50,000, and in response, buyers have stretched loan terms further than ever just to make the monthly payment work. According to J.D. Power, 72-month loans now make up over 40% of new car financing, while loans of 84 months or longer account for nearly 13%. That shift may solve the payment problem in the short term, but it creates a much bigger issue over time—borrowers are building equity at a much slower pace.
That slow equity build is now catching up.
Nearly 31% of all trade-ins currently carry negative equity, a five-year high according to Edmunds. On average, those borrowers are underwater by $7,183. While a large portion fall under $5,000, the broader trend is what matters: more borrowers owe more than their vehicles are worth, and they’re staying in that position longer.
For years, rising used-car values helped mask this problem. That cushion is gone. As used-vehicle prices have cooled and ownership costs like insurance, maintenance, and fuel have increased, the financial pressure on borrowers has intensified. Many who purchased during the inflated pricing period of 2021–2022 are now facing steeper-than-normal depreciation, making their position even worse when it comes time to trade in.
And many don’t reset—they roll the problem forward.
Negative equity is frequently carried into the next loan, increasing the total balance and extending the timeline even further. Data analyzed by the Consumer Financial Protection Bureau shows that borrowers who roll over negative equity tend to have lower credit scores, lower incomes, and longer loan terms—and are significantly more likely to have their accounts assigned for repossession within two years.
This is where the K-shape becomes very real for the repossession industry.
The stress is not evenly distributed. It’s concentrated in borrowers who are overextended, underwater, and out of options. That means the increase in repo volume isn’t broad—it’s targeted. Subprime and near-subprime accounts are where the pressure shows up first, and they’re often tied to exactly the kind of loan structures the data is highlighting: long terms, rolled equity, and minimal financial flexibility.
But more volume in this environment doesn’t mean easier work.
These are not clean assignments. These are borrowers who have been upside down for years, who may have already attempted to restructure or refinance, and who are now at the end of the road. Vehicles are harder to locate, more likely to be moved, and often in worse condition. Time to recovery increases. Costs increase. And at the same time, lenders are taking longer to forward accounts, meaning agencies are often receiving placements that are deeper into default and more difficult to resolve.
There is also a downstream effect on recovery value. Vehicles tied to long-term, high-balance loans and negative equity cycles are more likely to be poorly maintained, and in a market where certain segments are softening, liquidation results can be inconsistent. The industry ends up in a position where there is more activity, but not necessarily more profitability.
This is the reality of a K-shaped economy in repossession. One side of the market remains stable and largely unaffected. The other side is under increasing strain, driven by loan structures that were designed to make vehicles affordable in the moment but are proving difficult to sustain over time.
The takeaway isn’t that the sky is falling. It’s that the ground is shifting. The current environment is producing more assignments, but they are more complex, more resource-intensive, and more dependent on operational efficiency than raw volume. The agencies that recognize that shift—and adjust for it—are the ones that will navigate this cycle successfully, while others may find that more work doesn’t always translate into better results.
Dave Branch
