Can I get car finance if I have negative equity?
Yes, you can get car finance with negative equity. Lenders work with people in your situation every day. Your approval depends on your income, affordability, and how much you owe compared to your car's current value.
Finance providers assess your circumstances before approving a new finance deal. They'll check the size of your shortfall, your monthly budget, and the price of your replacement vehicle. You'll need to demonstrate you can comfortably afford the combined repayments without financial strain.
You have practical options to change your car whilst managing your outstanding balance:
- Choose a cheaper replacement vehicle to reduce your total borrowing
- Trade in your current car to offset part of the shortfall
- Work with your finance provider to structure affordable monthly payments
Our car finance calculator shows you realistic monthly costs before you apply. This helps you select a vehicle within your budget and avoid ending up in negative equity on your next car.
Car finance calculator
These estimates are subject to credit checks and may change when you apply for finance. this is for example purposes only
Hire Purchase (HP)
APR 11.9%60 monthly payments of
£0
- Interest rate
- 11.9% APR
- Amount of interest
- £0
- Total payment
- £0
Personal Contract Purchase (PCP)
APR 11.9%60 monthly payments of
£0
- Optional final payment
- £0
- Interest rate
- 11.9% APR
- Amount of interest
- £0
- Total payment
- £0
Rates from 9.9% APR: the exact rate you will be offered will be based on your circumstances, subject to status. Representative Hire purchase (HP) example: borrowing £7,000 over 5 years with a representative APR of 21.9%, the annual interest rate of 21.9% (Fixed) and a deposit of £0, the amount payable would be £185.33 per month, with a total cost of credit of £4,119.81 and a total amount payable of £11,119.81. We look to find the best rate from our panel of lenders and will offer you the best deal that you're eligible for. We receive a fixed fee commission per finance agreement, or we receive a commission based on a percentage of the total amount of finance taken. This will not affect the interest rate offered or the total amount repayable. Our service is free.
What is negative equity in car finance?
Negative equity happens when you owe more on your car loan than your vehicle is currently worth. Your outstanding loan balance exceeds the market value of the car. This gap between what you owe and what your car is worth creates the negative equity amount.
For example: you still owe £5,000 on your finance agreement. Your car's value in the used car market sits at £3,500. You're facing £1,500 of negative equity. The car is worth less than your remaining loan balance.
Cars depreciate quickly. Age, mileage, condition, and market demand all affect how much your vehicle is worth. The steepest drop occurs early in your loan term when your monthly payments mainly cover interest rather than principal.
Negative equity car finance lets you combine this shortfall with your next vehicle's cost into one manageable loan.
How to get out of negative equity car finance?
Managing negative equity requires careful planning, but you have several practical options available. Your best choice depends on your budget, how urgently you need to change your car, and your long-term financial goals.
Your options:
- Keep the car and pay extra each month. This approach works well if you're comfortable with your current vehicle and can afford slightly higher payments. Small increases accelerate your progress towards positive equity whilst cutting the total interest you'll pay.
- Trade in the car for a cheaper replacement. Your lender can roll the negative equity amount into your new car finance agreement. Choosing a cheaper car helps offset the additional borrowing, though you'll still need to pay off the negative equity over time.
- Settle the finance completely by paying the shortfall in full. This clears the debt and gives you a fresh start for your next car. Contact your finance provider to discuss a settlement plan if you can't pay the full amount immediately.
- Request voluntary termination if you have PCP. PCP customers who've paid at least half the total amount can return the car and walk away from the agreement without covering the remaining balance. You must meet specific conditions, so check your contract terms before choosing this route.
Negative equity with PCP car finance
PCP car finance offers lower monthly payments with a large balloon payment at the end if you want to keep the car. This structure means you build equity slowly, making negative equity more common during your agreement.
You have three options when your contract ends. Pay the balloon payment to own the car outright. Return the car to your finance company and walk away. Part exchange for a newer model and roll the shortfall into your next deal if the costs fit your budget.
Voluntary termination lets you return the car once you've paid 50% of the total amount payable. Contact your finance provider to check if you qualify.
Request a settlement figure and get a trade-in valuation for your vehicle. Decide whether to roll the shortfall into new car finance, pay part of it, or keep your current car. Use our car finance calculator to check how different options affect your monthly payments and total costs.
Mileage overages and damage result in extra charges that increase what you owe. Factor these into your decision before choosing your next move.
Negative equity with HP car finance
HP car finance builds equity faster because you repay the full car value with higher monthly payments. You own it outright at the end with no balloon payment, reducing your negative equity risk compared to PCP.
Negative equity can still occur early if depreciation outpaces payments. Request an early settlement figure and trade-in valuation. Part exchange into a cheaper used car, pay the shortfall directly, or refinance a smaller amount into a new loan.
Compare rates and check the total amount before you apply. Use our car finance calculator to test different deposits and terms against your income. Choosing a lower-priced car helps reduce negative equity whilst moving towards owning your vehicle.
When getting car finance with negative equity works and when it doesn't
When it works
You can get a negative equity finance deal if the shortfall stays small enough for lenders to include in your new agreement. The car is only worth £3,500 but you owe £5,000. Lenders can add this £1,500 gap to your next car finance deal as long as your monthly payments remain affordable. Choosing a cheaper replacement vehicle makes approval more likely. A larger deposit or strong part-exchange value helps reduce the amount of negative equity you need to roll forward.
When it doesn't
Lenders limit how much shortfall they'll cover. They check your deposit, replacement car price, and the total amount payable under HP or PCP. The shortfall size between your car's value and what you owe determines approval. They assess whether your new agreement stays sustainable.
When is negative equity a problem for car finance?
Negative equity doesn't affect you if you keep making payments and drive your current car until the agreement ends. Negative equity a problem arises when you want to change cars, sell your car, or end your finance agreement early.
A car with negative equity makes selling or part-exchanging complicated and expensive. The sale price won't cover what you owe, forcing you to pay the shortfall yourself. Returning the car on PCP doesn't automatically clear your debt—you still owe the outstanding amount under your agreement terms.
Rolling the shortfall into a new car finance deal increases the total amount payable and raises your monthly payments. This delays your ability to buy a car outright and forces you to rebuild equity in the car before you can change vehicles without extra costs.
Insurance payouts create another problem. If your car is written off, insurers pay market value, which rarely matches what you owe. You must cover the gap yourself unless you have GAP insurance to protect against this shortfall.
How can I avoid negative equity on a car?
It's not always possible to avoid negative equity, but you can reduce the risk of negative equity significantly.
- Put down a larger deposit to build more equity from the start. This lowers what you owe and helps if you end the agreement early. Aim for 10-20% of the car's value.
- Make higher monthly payments when you can afford them. Paying more builds equity faster and reduces the total interest you pay. You'll also reach ownership sooner.
- Choose cars that hold market value well. Some models depreciate slowly whilst others cause negative equity by losing value rapidly in the first years.
- Buy a cheaper car to reduce borrowing. Lower payments protect you if the value of your current car drops faster than expected.
Contact your finance provider to check your current equity position. Knowing what you owe helps you avoid deals that increase risk.
How much negative equity can you finance?
Lenders set no fixed limit on how much negative equity you can finance. They assess each application based on affordability and the new car's market value. Your outstanding loan, deposit, and monthly payment capacity determine what they'll approve under your finance agreement.
The calculation works simply: shortfall plus new car price minus deposit equals the total amount to finance. Lenders approve when this figure stays within their criteria and monthly payments remain affordable at the quoted interest rate and APR. Both PCP and HP agreements can accommodate negative equity when the structure fits your circumstances.
What sets your limit:
- Affordability: Your income, existing commitments, and the monthly payment you can sustain
- Loan-to-value: How your total borrowing (including shortfall) compares to the new vehicle's market value
- Deposit and part exchange: Larger upfront equity reduces the amount you need to borrow and lowers lender risk
- Product fit: PCP with balloon payments creates lower monthly costs; HP repays capital faster through higher payments
- Term and rate: Your chosen term and interest rate affect long-term affordability as cars depreciate
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FAQ
How do I know if my car has negative equity?
Request a settlement figure from your finance provider showing what you owe. Get a valuation from online tools or visit local dealerships for trade-in quotes. Compare both figures—if you owe more than your car's current value, you have negative equity. The difference reveals your shortfall amount.
Can I sell a car with negative equity?
Yes, but you must settle the outstanding finance first. The finance company owns your vehicle until the loan is fully paid. Request a settlement figure from your lender, then either pay the shortfall yourself or arrange for the buyer or dealership to cover the difference as part of the sale.
Will gap insurance cover negative equity?
Gap insurance can cover negative equity if your car is written off or stolen and the insurance payout falls short of your outstanding balance. Coverage depends entirely on your policy terms—standard policies typically exclude negative equity rolled over from previous agreements. Check your policy documents or contact your provider to confirm.
Will putting down a larger deposit reduce my chances of negative equity?
Yes. A larger deposit lowers your loan balance and reduces the gap between what you owe and your car's value from day one. This significantly cuts your risk of negative equity. However, depreciation rates and loan terms still affect your position—on PCP deals especially, seek advice before committing to large deposits.
Can I refinance a car if I have negative equity?
Yes, you can refinance a car if you have a negative equity. Lenders consolidate your shortfall into a new agreement, potentially lowering your interest rate or extending the term for smaller monthly payments. This increases total borrowing and interest paid over time. Request settlement figures and compare offers carefully to confirm refinancing genuinely benefits your budget.
Should I be worried about negative equity?
Negative equity is normal during most finance agreements and isn't a problem if you continue making monthly payments until the term ends. You should worry only if you need to sell your car, change vehicles early, or if your car is written off—these situations require you to address the shortfall immediately.
Can you end car finance early if you have negative equity?
Yes. You can request voluntary termination once you've paid 50% of the total amount payable, letting you return the car without covering the shortfall. Alternatively, settle the outstanding finance yourself, or roll the negative equity into a new finance deal with a different vehicle—though this increases your total borrowing.
Can I part exchange my car with negative equity?
Yes. Dealers can roll your negative equity into a new loan, combining the shortfall with your next car's price into one finance agreement. This increases your total borrowing and monthly payments. Choose a substantially cheaper replacement vehicle to keep costs manageable, and confirm the lender approves the combined amount before proceeding.
How much negative equity can you roll into a car?
There's no fixed limit—lenders assess each case individually based on affordability and the new car's value. Most lenders cap loans at around 125% of the vehicle's worth. Your shortfall plus the new car's price minus any deposit creates your total borrowing. Approval depends on your income supporting monthly payments comfortably.
Do dealerships pay off negative equity?
Dealerships can settle your outstanding finance, but you're still covering the cost—they're rolling the shortfall into your new loan, not absorbing it. You're combining both balances into one finance agreement with higher monthly payments. This provides convenience but increases your total borrowing and the interest you'll pay over the term.
Can negative equity be written off?
No, negative equity cannot be written off like a forgiven debt. You must address it by paying the shortfall yourself, rolling it into new finance, or using voluntary termination if you've paid 50% of your agreement. GAP insurance covers write-offs when insurance payouts fall short, but standard policies exclude pre-existing negative equity.
