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Rates from 9.9%: the exact rate you will be offered will be based on your circumstances, subject to status. Representative example: borrowing £10,000 over 60 months, £1,000 deposit, on HP, and a representative APR of 19.9%, the amount payable would be £229.95 per month, with a total cost of credit of £3,796.82 and a total amount payable of £13,796.82.
We look to find the best product from our panel of lenders and will offer you the best deal that you’re eligible for. We earn a commission for providing our services, but this does not influence the interest rate you’re offered.
According to the Society of Motor Manufacturers and Traders (SMMT), the trade association for the UK motor industry, more than half of car buyers need car finance to purchase a vehicle. In most cases, the process of getting car finance is pretty simple and doesn’t require any further explanation.
However, there are some occasions where getting a car loan becomes more complicated. One such case involves having negative equity on an existing car finance deal when you want to buy a new car.
In car finance, negative equity is when the vehicle is worthless in real terms than you owe for the remainder of your car finance term. What it means is that people who get car finance to buy a car often face the challenge of their vehicle costing less than the amount still outstanding on the initial credit.
For instance, if you still need to pay off £5,000 to your car finance company, but the car itself now only costs £3,500, you’d have £1,500 of negative equity on your loan.
On the one hand, it makes sense, because the car gets older every year, so it becomes more outdated, not to mention the accidents you may have got into with the car. But on the other hand, it seems pretty unfair that you need to keep paying for a vehicle whose value is constantly dropping.
The problem becomes pretty obvious once you decide to sell your car. The proceeds for the sale are insufficient to pay off the original credit, and you’re left with the outstanding balance to pay.
If your current vehicle is accepted by a car dealer in part exchange for another one, the credit we arrange:
However, this might not be a solution for everyone. There is a limit to the amount of negative equity that might be cleared this way. Before offering you credit to clear your outstanding debt, we will take several things into consideration, such as:
Anyway, if you’re looking for a new car finance deal while having a negative equity car finance problem on the existing deal in the UK, you’ll need to:
Negative equity isn’t a problem until you suddenly need or want to sell your car and buy a new one. That’s when you realize that the value of your old vehicle has dropped significantly and that you now owe more to the finance provider than the car is worth.
In that case, you may want to consider purchasing a cheaper new car - getting a less expensive model would be a great option for those who have been hit with excess mileage, for example.
If you’re not going to sell your car any time soon – or before your car deal with the lender is terminated – you won’t have to deal with negative equity at all. In most cases, borrowers end up with positive equity towards the end of the car deal term.
The negative equity finance option is often used to help pay the early settlement on Personal Contract Purchase (PCP) deals, which offer lower monthly payments and some good options. But it will leave you with a big lump sum payment in the end so that the car ownership can be transferred to you.
As soon as you find a new car to replace your old one, you will have to arrange negative equity finance and have your current car collected.
Your negative equity car finance will be arranged by the new lender, and you’ll then make one monthly payment to the new finance company, plus any owed from your previous deal.
Negative equity car finance may be very useful towards the end of your PCP contract when you can decide whether you want to pay a considerable sum to keep the vehicle or simply return it. Another case could be when you’ve exceeded the mileage limit or damaged your car, which incurs penalties. Here, you could use negative finance to pay them out and purchase another car if those penalties prove unaffordable. Negative Equity With HP
If you have a hire purchase (HP) car finance contract on your hands, negative equity is a lesser problem. With HP, you have to factor in the interest on the money borrowed into your calculations. As such, paying off the car faster is in your best interest.
But if you do get in negative equity early on in the deal and need to terminate your HP agreement, you should be able to take out car finance on a cheaper model. Thus, it will allow you to spread the remaining debt and all on your previous car.Get my quote ➜
Negative equity is not an obstacle on your way to receiving car finance. If you agree to a cheaper car and follow our recommendations, you might be able to get negative equity car finance. So, to get a car loan, you will need to:
By doing so, you’ll get a whole other car finance deal, which will help you pay off both your new vehicle and the outstanding debt left from your previous purchase. You might want to use our Car Finance Calculator to find out what you can afford and what your options are.
Sometimes life circumstances force us to get out of any financial deals. If you’re paying off your car loan but find yourself in negative equity, you have a few options available:
While it is not always possible to avoid negative equity, there are things you can do to lower your risk of getting it, for example:
At Carplus, we provide our customers with many good car finance options, and we’re doing our best to offer each client a great deal, even if they:
Don’t hesitate to reach out to our team at Carplus, and get your personalized no-obligation quote. A car is a necessity, not a privilege, so we’ll do whatever it takes to find you a vehicle finance deal to suit your budget.
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Yes, you still can get car finance even if you’re in negative equity. You will just need to find a cheaper model and trade-in your current car to buy another one.
Depending on your car finance provider, contract, and how much you’ve already paid off, you may be able to restructure your credit, settle the loan, or even terminate it voluntarily. But it is definitely recommended to keep making your monthly payments for as long as you can afford it to avoid a bad credit score.
Most finance providers typically have a maximum loan-to-value ratio of around 125%, meaning that your car’s loan should not exceed more than around 125% of its value.
Car owners who owe more on their vehicle than they’re likely to get from a trade-in offer could find themselves looking for dealerships who can “guarantee” that their car loan can be 100% paid. However, when a dealership offers to pay off the full amount that you owe on your vehicle, it usually means they’re taking your negative equity on to your next car credit.
To get rid of your car loan's negative equity, you can pay it off all at once. For instance, if you owe £5,000 on your car and the lender offers £4,000 for the trade-in, you would make up the £1,000 difference to your finance company.