Negative Equity
Car Finance

Negative equity happens when the amount you owe on a loan is more than your car is currently worth. And finding yourself in this position isn’t as rare as you might think. Cars naturally depreciate – lose their value – over time and newer cars can depreciate faster than older models.

Depreciation isn’t an exact science though; some models are believed to hold their value better than others while factors such as the way you drive your car and the condition it’s in can affect its value over time.

Typically, new cars depreciate quickly in their first few years and this slows down as time goes on. So, if you have a hire purchase agreement, you might start off in negative equity, but this can reduce over time as you continue making payments (reducing the outstanding loan amount) and the car starts to lose value more slowly.

But in a personal contract purchase agreement (PCP), the unpredictable nature of depreciation can have more of an effect. This is because your balloon payment – the amount you need to pay at the end of your agreement if you want to buy the car outright – is based on the expected value of your car at that time (which can also depend on the number of miles you’re expected to drive). If your car has lost value more quickly than predicted, you could find that your balloon payment costs more than the car is worth.

Negative equity can also be an issue if you need to sell or part-exchange your car during the loan term and you need to pay a settlement figure that’s more than your car is worth.

If you find yourself in negative equity you don’t have to be stuck there forever! Here at CarFinance 247 we work with a panel of lenders and some of them can provide finance options for people in negative equity. These loans can help people who are looking to trade in their current car for a newer or cheaper model and combine the cost of clearing the negative equity and the price of a new car into one monthly payment.

So, you’ve found yourself in negative equity – what are your options?

• Do nothing – if you have a hire purchase agreement you can continue making your repayments until the end of your loan term or if it’s a PCP deal, you can simply hand the car back
• Pay the difference – if your agreement allows, you could sell or trade-in your car and make up the difference from your own savings
• Apply for negative equity car finance – make an application to find a loan that can cover the cost of your settlement figure and new car
• Voluntary Termination – as long as you’ve repaid 50% of the total amount payable (including interest, fees and the balloon payment in a PCP deal), you have the right to voluntarily terminate your agreement and hand the vehicle back

Unfortunately, there’s no way to guarantee that you’ll never be in negative equity. It’s virtually impossible to know how quickly your car will depreciate and the car market can be unpredictable. But as a rule of thumb, brand new cars can lose their value quickly, especially in the first three years, and so you might be able to reduce the chance of landing in negative equity if you opt for a used car. A large deposit could help too as this will decrease your overall loan amount.

For us, car finance is all about helping people improve their everyday lives.

Whether you need a car for the school run, the weekly shop, or your daily commute, we’ll look to find you the best negative equity car finance deal from our panel of lenders.

Plus, you’ll have a dedicated account manager on hand to help you through the process and speak to the dealership on your behalf.

It all starts with a quote. If you’re approved in principle, we’ll give you a call to talk through your options. Your account manager can answer any questions you have and grant you access to our car search – a treasure trove of over 100,000 used cars ready and waiting to find a home. Found a car somewhere else? We can still help – just let your account manager know.