Nearly one in three Americans trading in a vehicle today owes more on their loan than their car is worth. Data from Edmunds shows that 30.9% of trade-ins toward new-vehicle purchases carried negative equity in Q1 2026, the highest share of underwater trade-ins for any quarter since Q1 2021. The average amount owed on those underwater trade-ins reached $7,183, up 42% compared with the same period five years ago.
For collision repair shops, that debt load is showing up in claim filing behavior, total loss frequency, and how shops are adapting to a market where insured volume is shrinking and financial pressure on vehicle owners is growing.
How Total Loss Is Determined
Understanding why negative equity matters to shops begins with how insurers determine a vehicle is a total loss, which is a process that does not account for a vehicle owner's loan balance.
Chantelle M. Roberts, CPCU, AIC, RPA, ITP, a claims consultant with 25 years of experience at carriers including Liberty Mutual and MetLife, explained that the calculation is based on the relationship between damage cost and the vehicle's actual cash value, or ACV.
Roberts said adjusters first check whether the state has a set total loss threshold, and default to an industry standard when it does not. “If the damage is either 70%Us to 75% of what the value of the vehicle would be, we would go ahead and total the vehicle,” she said.
ACV is the vehicle's current market value at the time of loss, not its purchase price or outstanding loan balance. Roberts said adjusters typically establish that figure by researching comparable vehicles in the same ZIP code through sources such as Kelley Blue Book, averaging the results and factoring in tax, title, and licensing costs.
When a vehicle is declared a total loss, the settlement check goes to the lienholder first. Roberts said the insurer's obligation is defined solely by the insurance policy, and any remaining loan balance after a total loss settlement is the vehicle owner's obligation to the loan company, not the insurer.
The Consumer's Exposure
That dynamic takes on new weight at current debt levels. According to Edmunds, 26% of underwater trade-ins in Q1 2026 carried more than $10,000 in rolled-over debt, and 9.3% exceeded $15,000. Monthly payments for buyers rolling negative equity into a new loan averaged $932 in Q1, a record high and $159 above the market average. More than 90% of those borrowers carried loan terms of 72 months or longer; 43% had loans extended to 84 months.
Roberts illustrated the gap a total loss creates for an underwater borrower: if the insurer's ACV settlement covers only a portion of what is owed on the loan, the borrower is responsible for the rest. In her example, an insurer pays out $10,000 on a vehicle with a $17,000 loan balance, leaving the borrower on the hook for $7,000 with no car.
That financial exposure is translating into behavioral shifts at the shop level. Patrick Crozat, vice president of G&C Auto Body, cited several forces reshaping how consumers approach claims. He cited increasing insurance rates, used car values dropping since COVID, cost per claim increasing over the last few years due to inflation and ADAS.
“The average consumer has more debt than ever before,” he said. “All of these things have caused consumers to hold onto their cars longer than usual.”
Crozat noted that consumers are also worried that if they turn in a claim that their rates will go up even more, that they will get cancelled by the insurance all together or have their car totaled and still owe money — or just can't afford to buy another car.
Rachel Hutfless, chief client officer at Crash Champions, said the multi-location MSO has seen the same trend across its network. “Over the past 12 to 18 months, we've observed a noticeable shift in customer behavior: more individuals are requesting repair estimates and ultimately opting to pay out of pocket rather than filing insurance claims,” Hutfless said. “This trend has resulted in a significant increase in customer-pay opportunities across our network.”
Hutfless also said customers have directly cited concerns about their loan situations as a factor. “We've received feedback from customers across our network expressing concerns about filing claims, often citing fears that their vehicles could be totaled or referencing their loan situations as influencing factors.”
Cash-Pay Work Is Up
Both Crozat and Hutfless confirmed that out-of-pocket repair work has increased materially.
“Customer pays and cash outs, or not repairing at all, are way up year over year,” Crozat said.
According to S&P Global Mobility data cited in CCC Intelligent Solutions' 2026 Crash Course report, the average age of light vehicles on U.S. roads reached 12.8 years in 2025 — reflecting a consumer base holding onto vehicles far longer than in prior cycles.
Mike Schoonover of Schoonover Bodyworks and Autocare in Minnesota said he is seeing the same shift, and drew a parallel to conditions following the 2008 financial crisis. "We're kind of in a similar situation with people struggling," he said. "We are seeing an increase in people not filing an insurance claim."
To address the trend, Schoonover said his shop developed a good-better-best pricing model for customer-pay work — a system he put in place after 2008 and has used ever since. “Best” is running the repair through insurance. But for customers who cannot cover their deductible or do not want their rates to go up, the shop offers scaled repair options.
"Maybe they just want to replace the minimal parts ... something kind of roughed out and not perfectly repaired," he said. The shop also uses used or color-matched parts to reduce costs further. "In some cases, it costs them little or nothing," he said.
Schoonover also noted a pattern of customers expressing reluctance to involve their insurer at all. "We've had a lot of customers comment, 'I really don't want my insurance company to find out,'" he said. One customer told him he was paying out of pocket because "the insurance company needs to be profitable." Schoonover attributed the sentiment to widespread fear and misunderstanding of how insurance works.
When a customer is on the fence about filing, both Crozat and Schoonover described an approach centered on transparency.
"We try to give them enough transparency to make an informed decision, because in today's environment, that decision has bigger financial consequences than it used to," Crozat said. His team typically walks customers through estimated repair cost versus their deductible, the likelihood of supplements, and whether the vehicle is at risk of being totaled.
Schoonover said his shop encourages customers to call their insurance agent directly to understand the rate implications before deciding. "They're absolutely shocked and horrified when the insurance company tells them your rates might jump 20, 30, 40%," he said. "Or we've had a couple of instances where it's like, you might get dropped."
Hutfless said her team similarly focuses on empowering customers with information. “Our team is dedicated to meeting customers where they are, listening to their concerns, and helping them make the best decision for their circumstances. We strive to ensure the repair process is transparent and straightforward, empowering customers with all the information they need.”
Record Total Losses Are Pulling Vehicles Out of the Repair Stream
The climb in out-of-pocket repair decisions is occurring against a backdrop of record total loss frequency. According to CCC Intelligent Solutions' 2026 Crash Course report, total loss frequency reached 23.1% of all claims in 2025, a new industry high. The report also found that repairable claim volume declined 9.7% in 2025 across all coverages.
Crozat said 2023 was a strong year for shops in part because vehicles weren't totaling. “Cars couldn't total and you were fixing them and able to write a full sheet, instead of making concessions on the price of the bill or doing work for free to just save a job.”
He noted the shift in CCC's latest data: “23.1% of all cars are total losses now when just a couple of years ago in 2023 it was 19%. Imagine if you fixed 4.1% more cars every month — what that would do for your store.”
Hutfless confirmed the trend from Crash Champions' vantage point. “Recent industry reports indicate that total loss claims have reached unprecedented levels. The average vehicle age surpassed 12.8 years in 2025, and ongoing advancements in vehicle design and manufacturing complexity, along with rising parts costs, continue to drive up overall repair expenses. These combined factors have significantly affected the frequency of total loss claims, and we are witnessing similar trends within our own repair centers.”
Schoonover said he is seeing total losses declared on vehicles that would not have been written off a few years ago. "It seems as though the percentage — what used to be like here in Minnesota, the total loss percentage of when a vehicle gets to like 70% — we're seeing now where it's not even close to that," he said. "We're seeing now that if a vehicle even needs a tow truck, the insurance company wants it towed to the salvage yard or to the customer's house, because they're just going to deem it a total loss."
CCC's report attributes the shift in claims mix to several converging factors: higher deductibles and affordability pressures are causing consumers to absorb smaller claims rather than file them, concentrating the claims that do enter the system at higher severity levels. The report also notes that vehicles between seven and 12 years old now represent nearly 41% of total loss valuations, up from 33.4% in 2020.
A prior analysis by CCC found that total loss frequency had reached 22.8% through October 2025, on pace for a second consecutive record, while repairable claim volume and calibration demands were reshaping shop operations heading into 2026.
How Shops Are Responding to a Compressed Market
Crozat outlined the operational steps he recommends for shops navigating the current environment: “Work every opportunity that walks through your door, maximize your SEO web presence. Focus on new revenue streams like dealership and fleet work. Focus on your GP and fixed expenses and do sales training with your staff.”
Crozat said front-counter execution on customer-pay estimates is a critical variable. He recommended that shop owners monitor staff conversations with customers and review every estimate to identify vehicles that could be saved from a total loss. On cash estimates specifically, he said writers need clear direction to price appropriately. “If money is tight for the consumer, they are looking for the best bang for their buck and most likely shopping around for the best price.”
Schoonover said shops should start by asking customers what they actually want rather than assuming a full insurance-standard repair is the goal.
"We are so conditioned to write an estimate as though insurance is paying for it," he said. "I think we as an industry need to talk to the customer and ask them what they want."
He said that educating customers on the pros and cons of repair options, such as OEM versus used or aftermarket parts or partial versus full repairs, allows them to make informed decisions while still receiving a safe and proper repair. "I just think shops can build a lot of goodwill when they just start asking the customer what they want to do," he said.
Crash Champions is addressing the cash-pay trend at scale through financing options. “We partner with industry leaders to offer pay-over-time financing solutions, giving customers greater flexibility in managing expenses,” Hutfless said. “Additionally, we provide access to discounted rental rates and other resources, all aimed at reducing stress and making the journey to vehicle repair easier and more accessible.”
