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Rates from 9.9% APR: the exact rate you will be offered will be based on your circumstances, subject to status. Representative 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.

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.

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What Is Negative Equity?

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On the one hand, it makes sense, because the car gets older every year, so it becomes more outdated, not to mention the accidents you may have got into with the car.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.

When Getting Car Finance With Negative Equity Works and When It Doesn’t

If your current vehicle is accepted by a car dealer in part exchange for another one, the credit we arrange:

  • It will be used to clear your debt
  • Will cover the cost of the car you’re planning to buy

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:

  • The amount of your debt (negative equity)
  • The difference between the downpayment and the total car value
  • The total cost of the new car

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:

  • Have clean credit records
  • Be employed in the UK
  • Submit a driving license

When Is Negative Equity a Problem?

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.

Negative Equity With PCP

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.

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Can I Get Car Finance If I Have Negative Equity?

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:

  1. Find a vehicle that is cheaper than the current value of your car.
  2. Trade-in your current model and use that to buy another car.
  3. Agree on the extra with the finance company.

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.

How to Get Out of Negative Equity Car Finance?

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:

  1. Keep paying if you can afford it. Don’t panic if you realize that you’re in outstanding debt early on in a car finance deal – the debt will even itself out by the end of your repayment period.
  2. Settle the credit. Some lenders offer an opportunity to settle the loan if you want to get out of the deal early. This can be even more expensive, but you might roll this into a negative equity finance deal for your next vehicle.
  3. Restructure your repayment plan. In case you can no longer afford your repayments, consider talking to the finance company. See if they can offer other options, such as spreading your credit out over a longer period with smaller repayments.
  4. Arrange voluntary termination. It might be worth to re-read your car finance deal contract as some lenders allow you to return your vehicle and get out of the deal, but only if you’ve paid over 50% of the agreement off.

How Can I Avoid Negative Equity?

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:

  • Doing research on the car you want to buy – some models will depreciate faster than you’ll be able to pay them off;
  • Paying a deposit rather than paying the full price on car finance;
  • Keeping your vehicle in good condition;
  • Taking out hire purchase car finance;
  • Nor exceeding your annual mileage limit.

Apply with Carplus!

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:

  • Cannot make a down payment
  • Have a poor credit score
  • Have no credit history
  • Have gone bankrupt
  • Need cheap no-deposit car finance

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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Can I Get Car Finance with Negative Equity?

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.

How Do You Get Rid of Negative Equity on a Car?

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.

How Much Negative Equity Can You Roll into a Car?

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.

Do Dealerships Pay Off Negative Equity?

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.

Can Negative Equity Be Written Off?

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.