When you are upside down on your auto loan, it means you have more left to pay on the loan than the vehicle you took out the loan to purchase is actually worth. Also called negative equity, this situation can pose serious problems.

An increasing number of Americans are experiencing this. Data from car-shopping site Edmund's released in late July revealed that "26.6% of trade-ins applied toward a new-vehicle purchase had negative equity," marking a "four-year high," said The Washington Post . The amount drivers are owing is not insignificant either — on average, the "amount of these upside-down loans was $6,754 in the second quarter of the year," with over 23% owing more than $10,000, said the Post, citing Edmund's data.

What is an upside-down car loan?

A car loan is upside down when

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