Negative Equity Car Finance
Get Rates You’ll Love, On Terms You’ll Like, For The Car You Want!
- Rates from 7.9%.
- No impact on your credit score
- Buy from any dealer.
Rates from 7.9% APR. Representative APR 11.9%
Representative example: borrowing £7,000 over 4 years with a representative APR of 11.9%, an annual interest rate of 11.9% (Fixed) and a deposit of £0.00 the amount payable would be £183.99 per month, with a total cost of credit of £1,831.68 and a total amount payable of £8,831.68.
Vehicle Price:
£ 7000
Initial Payment (Deposit):
£ 0
To Pay Over:
48 Months
Best Available Rate:
6.9%
Initial Borrowing:
£7000
Total Cost Of Credit:
£1030.36
Total Amount Repayable:
£8030.36
48 Monthly Payments of
£167.30
Rates from 7.9% APR: the exact rate you will be offered will be based on your circumstances, subject to status.
Representative example: borrowing £7,000 over 4 years with a representative APR of 11.9%, an annual interest rate of 11.9% (Fixed) and a deposit of £0.00 the amount payable would be £183.99 per month, with a total cost of credit of £1,831.68 and a total amount payable of £8,831.68.
What is Negative Equity
Negative Equity is when the amount you owe towards the loan on your car finance is greater than the car is worth at that point in time.
This is due to multiple factors affecting the depreciation of the car, including the financial market, automotive industry changes, wear and tear and so forth. Some cars and models from certain manufacturers hold their value better than others. Typically brand new cars will depreciate rapidly in the first year.
In HP finance, you might find towards the start of your agreement you’re in negative equity and this balances out as you pay more towards your loan amount.
However, in PCP finance, the final value of your car, the balloon payment, is based on a future prediction at the time of agreement. If your car depreciates by a larger amount than predicted you will find your balloon payment is greater than what your car is worth at the end of your agreement.
If you want to refinance your car, your settlement figure might be more than what your car is worth, meaning your payments to your new lender may have a proportional increase because of this, even if the interest rate is better.
Process of your finance application
Finalising
If you are happy, we will finalise the deal with the lender on your behalf.
Enjoy Your Car!
Collect your car from the dealer and enjoy it for the duration of your contract.
What are my options if I have negative equity?
Firstly, don’t panic! We at Car Finance Market, will help to identify solutions that work best for your circumstances. These suggested solutions might include:
Do nothing Keep making your payments until the end of your HP agreement or hand the car back at the end of your PCP agreement
Pay the difference You could sell the vehicle, provided your lenders permit this, and cover the difference with your own savings or money.
Apply for negative equity car finance Find a new loan agreement than can cover the cost of the settlement and new car
Voluntary Termination If you have paid 50% of the total amount (+ balloon in a PCP agreement) you can terminate your agreement and hand the car back.
How does Negative Equity Car Finance work?
Let us take an example:
You take out a PCP finance agreement for a £40,000 ticket price car over 48 months at 8.9% APR, placing a £4,000 down payment. The guaranteed minimum future value of the car is set at £25,000 after 48 months. You complete 48 monthly payments of £459.
You discover that the value of the car at the end of your agreement is actually £20,000. This means you would be in a negative equity of £5,000.
You could choose to (a) Return the car (b) Pay the £25,000 balloon payment and own the car for £5,000 more than market value (c) Apply for negative equity car finance for a new vehicle.
By choosing option (c) you ask a lender to cover the cost of both your new car as well as the negative equity in your old car. Your lender pays the balloon payment (£25,000), and the £20,000 value of your new car goes towards your next agreement, however your lender then requires you to cover the cost of the negative equity in your next agreement too.
So, your next car costs £35,000, minus the trade-in value of the old car (~£15,000) and adding the negative equity (£5,000) your total amount to finance is £25,000. You choose to pay this over a further 48 months and your lender offers you a new rate of 6.9% with a GMFV of £17,500, bringing you a new monthly payment of £280.
However, Negative Equity Finance isn’t always available and depends on the value of negative equity and the cost of the car.
Can I avoid negative equity?
Whilst you can take measures to protect the value of your investment, you cannot guarantee positive equity outcomes. It is difficult to predict the market and depreciation. However, remembering a few key things can go a long way:
- Brand new cars will depreciate rapidly in the first 3 years especially
- Used cars have taken the depreciation hit already and will be more stable
- A larger deposit will reduce the costs involved in your loan
- Do your research! Observing market trends for cars that meet your purpose can go a long way, choosing a car with a renowned history of having a strong residual value will give you massive savings and increase the likelihood of exiting with positive equity.
Why come to Car Finance Market if you have negative equity?
Here at Car Finance Market, we believe car finance is more than just a new car. It’s a journey to improving everyday life.
Whether you need a car for your new job, to carry the kids to school or just to be proud of your achievements, we’ll work with you and our lenders to bring you guaranteed car finance and competitive interest rates and terms, helping you get the car you need or want.
We’ll help you assess your circumstance, collaborate with our panel of lenders, read the fine print for you, and provide you with a point of contact adviser to guide you through the decision.
What’s next? How do I apply for negative equity car finance?
Get a free no-obligation quote by filling in our quote form.
If you’ll be approved in theory by one of our panel lenders, we will reach out with your offers and explain what you have available.
We will be able to answer any questions you may have and we will leave you to find your perfect car (or you might already have one in mind!). You can search our vehicle stock or let us know about a car you have found elsewhere.
Use our calculator to find out how much you could afford to repay monthly.
Comparison of Finance Options
| Finance Features: | Hire Purchase (HP) | Personal Contract Purchase (PCP) | Personal Loan |
|---|---|---|---|
| Requires initial deposit | Optional | Optional | |
| Car is yours at the end of the agreement |
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Optional | |
| Fixed monthly payments |
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| Optional balloon (final) payment |
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| Avoid excess mileage charge |
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| Secured against an asset (e.g. a car) |
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| Support with vehicle issues |
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Frequently Asked Questions
Can I get car finance with negative equity?
Yes! You might need to find a car with a lower trade in value than your current car and have a good track record throughout your old agreement.
How can I get rid of negative equity?
Whilst you can’t change the value of your car, you can minimise the impact it has by following the steps in our guide above. Negative equity finance offers a great alternative to simply forking out the cash or walking away.
How much negative equity am I allowed to have?
Most lenders will not accept a loan-to-value ratio of greater than 125%, meaning the value of the loan you take out, factoring in the cost of your negative equity should not be more than 25% higher than the cost of the vehicle.
What are my alternatives?
If you don’t wish to finance the negative equity, you can choose to pay the difference after your trade-in. If you’re on a PCP deal you can pay the balloon payment and simply keep the car instead of refinancing.
Let's get started?
Getting a Free Quote with Car Finance Market only takes minutes, and will not affect your credit score
Get in touch
Phone:
0208 200 2431
Email:
info@CarFinanceMarket.co.uk
Business Hours:
Monday to Friday 09:00 - 20:30
Saturday 10:00 - 19:00
Sunday 10:00 - 17:00
