Negative equity happens when the outstanding balance on your finance agreement is greater than your vehicle's current market value. Your loan balance exceeds what the car is worth. This gap between what you owe and what your car is worth is the negative equity amount.
For example: you still owe £5,000 on your finance agreement. Your car's current value in the used car market sits at £3,500. You are facing £1,500 of negative equity. The car is worth less than your remaining loan balance.
Negative equity car finance is a type of car loan that lets you combine this shortfall with your next vehicle's cost into one manageable loan, so you can still change your current car even with an outstanding balance.
Yes, you can get car finance with negative equity. Some lenders allow the negative equity to be rolled into a new finance agreement, meaning you can still change your current car even with an outstanding loan balance. Approval depends on your individual circumstances, including income, affordability, and how much you owe compared to your car's current market value.
Finance providers assess your shortfall, your monthly budget, and the price of your replacement vehicle before approving a new deal. You will need to demonstrate that the combined repayments are affordable.
You have practical options to change your car whilst managing your outstanding balance:
Our car finance calculator shows realistic monthly costs before you apply, helping you choose a vehicle within your budget and avoid negative equity on your next agreement.
These estimates are subject to credit checks and may change when you apply for finance. this is for example purposes only
Maximum borrowable amount
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.
Several factors increase your risk of negative equity. Here are the main ones:
Negative equity does not affect you if you keep making payments and drive your current car until the agreement ends. The problem arises when you want to change cars, sell your vehicle, part-exchange it, or end your finance agreement early.
Selling or part-exchanging a car in negative equity is complicated and expensive. The sale price will not cover your outstanding balance, forcing you to pay the shortfall yourself. Returning the car on a PCP agreement does not automatically clear your debt — the outstanding amount remains due 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 build equity in the vehicle and means you cannot change cars without extra costs until that equity is recovered.
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:
The likelihood of negative equity increases or decreases depending on the type of car finance you choose.
With Hire Purchase (HP), you repay the full value of the car through higher monthly payments with no balloon payment at the end. This closes the gap between your outstanding balance and your car's market value faster, making negative equity less likely. If negative equity does occur early in the term, your options are: requesting an early settlement figure alongside a trade-in valuation, part-exchanging into a cheaper used car, paying the shortfall directly, or refinancing a smaller amount into a new loan.
With Personal Contract Purchase (PCP), much of the car's value sits in a large optional balloon payment at the end of the agreement. Monthly payments are lower, but your outstanding balance falls more slowly — making negative equity more common during the term. When your contract ends you have three options: pay the balloon payment and own the car outright, return the car and walk away, or part-exchange into a newer model and roll any shortfall into your next deal.
Lenders set no universal limit on how much negative equity you can finance. Each application is assessed individually against affordability criteria and the new car's market value.
The calculation is straightforward: your outstanding shortfall plus the new car's price, minus any deposit, equals the total amount to finance. Lenders approve this figure when it falls within their lending criteria and the resulting monthly payments remain affordable at the agreed interest rate and APR.
What sets your limit:
It's not always possible to avoid negative equity, but you can reduce the risk of negative equity significantly.
Compare and find the best car finance deals quickly and easily even with bad or poor credit. When comparing deals, you can also factor in the part-exchange value of your current car to reduce the overall cost.
Getting a finance quote with Carplus won't affect your credit score, but a hard search will be completed before completion of the deal
No-deposit car finance options are also available. Check your eligibility today with a soft search and find out what you qualify for.
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Negative equity does not affect your credit score. Your credit score is determined by how you manage your finance agreement, not by the value of the vehicle. Making repayments on time and meeting your finance agreement terms keeps your credit file unaffected.
Yes, some lenders allow you to roll negative equity into a new car loan, spreading the shortfall across your new agreement rather than paying it in one lump sum. This means you can change your car without clearing the outstanding balance upfront. Rolling negative equity into a new loan increases your total borrowing and raises your monthly payments. Check the full financial implications before committing to ensure the combined repayments remain affordable.
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.
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.
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.
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.
Yes, you can refinance a car with negative equity. Refinancing consolidates your shortfall into a new agreement, which can lower your interest rate or extend your term for smaller monthly payments. A lower rate means more of each payment reduces the principal, helping close the gap between your balance and the car's market value. If bad credit pushed your original rate up, refinancing after your score improves can make your payments more effective at reducing the principal. Request a settlement figure and compare offers carefully — refinancing increases total borrowing and interest paid over time.
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.
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.
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.
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.
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.
