Suze Orman Warns of No. 1 Car Loan Mistake That Traps Buyers in Debt

Nicole SpectorThu, April 23, 2026 at 12:00 PM UTC

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Car ownership costs in the U.S. remain high, largely due to elevated interest rates. In recent years, average new‑ and used‑car prices have hovered near record levels, according to industry data.

Unfortunately, you can make an already large purchase even more expensive -- and stressful. Suze Orman often warns on her blog about one pivotal car-buying mistake to avoid. People who have auto loans or are considering one need to pay attention and dodge this potential money pit.

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Loans on Top of Loans

Referencing a report from Edmunds, Orman has noted that about 1 in 5 people who bought a new car and traded in their existing vehicle still owed money on the old loan after the trade‑in.

Orman refers to this as being underwater, pointing out that average negative equity for borrowers with car loans runs into the thousands of dollars.

In and of itself, owing more on a car loan than the car's current market value isn't great. However, it's not all that bad provided you're making timely payments so that eventually, you'll owe less than the current market value.

The issue, as Orman sees it, is taking on more car debt when you already have preexisting car debt that has not been resolved.

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Cars Are Not Good Investments, So Buy What You Need

Most new cars plummet in value as soon as you drive them off the lot. They're bad investments, and shouldn't even be thought of as an investment the way a house is. So, getting into piles of debt over what is inherently a money-losing situation is a really bad idea.

"You will never recoup the cost of what you paid," Orman wrote in a blog post. "Especially if you used a loan to finance the purchase. The goal should always be to pay the least amount possible to meet your need for a car. If you intend to take out a loan, it is beyond dishonest to buy the more expensive car that you want and not the car that you need that will cost you less."

Don't Make Matters Worse

Orman has referred to buying new cars and trading them in with negative equity as "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," Orman penned. "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."

Buyer Beware -- Dealerships May Try To Convince You

The takeaway: Don't take out a loan for a new car when you'll still end up owing on your previous loan after the current trade-in value. Be prepared to stick to your guns, even if professionals at the car dealership are trying to persuade you.

"Please don't listen to the finance folks at a car dealership," Orman wrote. "Of course they will tell you it is no problem to roll over the remaining balance on your current car loan into a new car loan. As long as you qualify for a loan, they could care less if this is a financially smart move. All they care about is selling you the new car."

She concluded, "I care about your long-term financial security. 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."

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

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Source: “AOL Money”