Negative Equity Car Finance
What’s your monthly budget?
Rates from 9.9% APR. Representative APR 13.9%. We are a credit broker, not a lender.
Representative example: Borrowing £7,500 over 60 months with a representative APR of 13.9%, flat rate of 7.25% and deposit of £0.00, the amount payable is £170.98 per month, with a total cost of £2758.68 and a total amount payable of £10,258.80.
Get ahead of negative equity issues
Falling into negative equity on your current PCP deal can happen. If it does, getting a new finance deal can be difficult – but that’s where our negative equity car finance options come in.
What is negative equity?
Being in negative equity on your car finance deal means your car is worth less than the amount you have left to pay on your agreement. Whatever this difference is, you’ll need to make up before you can move on from the contract, no matter whether you want to trade in the car or walk away from the deal entirely.
It’s fairly standard to start a car finance deal in negative equity, particularly if you put down a small deposit. But car finance contracts are designed to balance out over time, the idea being that you’ll be in positive equity (where your car is worth more than you have left to pay) by the end of the deal – equity you’ll be able to use in reducing the cost of a new deal. Unfortunately, this isn’t guaranteed.
What can cause negative equity?
- A faster- or greater-than-expected loss in value: the Guaranteed Future Value (GFV) that decides the balloon payment on your PCP contract is calculated to accommodate for your vehicle’s expected depreciation, but if your vehicle depreciates quicker or more than anticipated, you might find yourself in negative equity for longer.
- Limited or no deposit: how much you pay upfront defines how much you borrow. If you pay little to nothing upfront, you’ll owe more on your contract, increasing the risk of negative equity.
- A long loan term: the longer your deal, the longer it takes to build equity.
- A higher interest rate: higher interest slows down the rate you pay off what you owe.
- Not looking after your vehicle: a poorly maintained vehicle loses more value, which will increase the equity gap.
What happens if you’re in negative equity?
You’ll need to settle the difference between what you have left to pay on the deal and how much your vehicle is worth. This matters if you want to move on from your existing deal, as you’ll have extra to pay.
There are various ways to sort negative equity out, from making extra payments to waiting out your current deal until you’re no longer in negative equity. The right approach really depends on what you’re planning to do next.
Can you get car finance when you’re in negative equity?
It’s possible, but it depends on the lender, your financial circumstances and the proposed solution for clearing the negative equity.
We can help you understand your options moving forward.
How does negative equity car finance work?
Negative equity car finance works by rolling the shortfall from your existing agreement into a new one. That means you don’t have to pay off your current deal before getting a new car on finance. Instead, your new lender will temporarily cover it for you, with that cost included in your new agreement.
It’s important to recognise that you’ll be refinancing what you owe, plus the cost of your new car, which means you’re likely to face higher monthly payments than previously. Not all lenders offer negative equity support, but we work with several that do.
Why would someone take on negative equity finance?
Taking on negative equity finance isn’t ideal, but it can be the most practical solution to a number of problems you might come up against when financing a car. Some common ones include:
- You need a different car: perhaps to accommodate a growing family, new job or lifestyle change.
- You’ve got problems with your current car: like persistent reliability issues or expensive running costs.
- You can’t afford to pay off your negative equity in one go: and you’d rather roll it into a new agreement to spread the cost.
If you’re struggling with negative equity and trying to figure out what your best course of action is, the best thing to do is give us a call, and we’ll be able to lay out why a negative equity car finance might or might not work for you.
How to get out of negative equity on your car finance
There are several ways to attack negative equity – and the right option for you will depend on your circumstances, alongside factors like your car’s value, how much you owe and what you want to do next.
The three most common routes to consider are:
- Pay off the difference via a one-off payment and clear your finance.
- Play the waiting game and stay committed to your deal until your remaining balance and your car’s value balance out.
- Roll the shortfall into a new agreement via negative equity finance.
All three are options we can discuss with you.
Get a fast, free, no obligation finance check today
Negative equity can be a difficult problem to figure out. The good news is we’re happy to talk through every potential solution, whether that’s a new negative equity finance deal or simply sticking with your current deal until you’ve paid off what you need to.
We’ll always be transparent about what might work best for you, but if you are curious about where you stand regarding a new finance deal, try our free soft credit check.
Alternatively, we’re always happy to talk – give us a call today.
Why choose a hire purchase deal with Hippo Finance?
- We boost your chances of approval
We work with specialist lenders who consider negative equity circumstances and offer better chances of approval to those struggling with negative equity.
- Negative equity experts
Our background – and decades of experience – lie in helping customers find flexible car finance while managing challenging financial circumstances, whether that’s bad credit or negative equity.
- End-to-end support
We offer an end-to-end service with dedicated account managers to guide you through every step of the car financing process, no matter what you’re looking for.
- Fast finance checks
Our free eligibility checker can give you an idea of where you stand when it comes to car finance. It takes two minutes to complete and won’t affect your credit score.*
Negative equity car finance FAQs
Can you transfer negative equity into a new car?
In some cases. Being approved for a negative equity transfer depends on the lender (not all lenders offer negative equity support) and your financial circumstances.
What happens if I sell my car with negative equity?
You’ll need to pay the difference between the car’s sale price and your remaining finance. So, you’ll still need to clear the shortfall, even if you no longer have the car.
Can I part-exchange my car with negative equity?
It’s possible, yes, but you’ll need to address the equity gap. Again, lender-dependent, the negative equity can be rolled into the new deal as part of the part-exchange process.