Negative Equity and How We Can Help

We understand that negative equity can seem like a complex topic. We're here to provide further explanations and assist you in navigating your options.

What is negative equity?

Simply put, negative equity is when the amount you owe a finance company for your vehicle currently exceeds the value of your car.

Don’t worry, this isn’t an unusual situation. With new cars especially, the value of the vehicle drops the most after it’s driven off the forecourt. It’s a result of the car losing the ‘brand new tag’ from the manufacturer.

Negative equity arises either at the end of a contract or if you decide to change your vehicle before the agreed-upon finance term, especially with a Personal Contract Purchase (PCP) agreement.

In a PCP agreement, there is a final payment referred to as a balloon payment or guaranteed minimum future value. If this balloon payment surpasses the car's value, it can lead to negative equity. However, when the final payment is a guaranteed minimum future value payment, the lender covers it regardless of the market value, reducing the associated risk. Please note: the lender will guarantee the value providing the contractual requirements have been met (for example, the car is within the agreed mileage, and has been maintained according to agreed servicing requirements). 

Hire Purchase (HP) agreements typically come with a minimal end-of-contract payment fee, typically around £10. For instance, if all payments over the agreed term are made, it won't lead to negative equity.

How do I deal with negative equity on my car?

It may become necessary to deal with negative equity if you need to settle early. It’s impossible to know how much a car’s market value will depreciate ahead of time before it dips.

An Asset Protection Plan (GAP insurance) will cover you from having to reach into your own pocket if your car is written off, stolen, or if you find yourself in negative equity.

Our Bristol Street Motors sales team will be happy to discuss these options with you and answer any questions you may have.

I want to settle the car I have

If you have a car in negative equity, you have a couple of options, and we are happy to discuss these with you. Deciding what your best move is does depend on your financial situation and the negative equity amount. 

I want to finance another car

You might want to finance your next vehicle, which isn’t a problem. All we need is a settlement figure from your current lender which, with your consent, we can get for you. 

What documents do I need to bring? 

If financing a new car is the route you want to take, and your current car is in negative equity, we’ll need two documents from you: 

With these documents, we can begin discussing the options available to you. Our helpful team at your local Bristol Street Motors dealership are ready to help you navigate the process. 

Keep an eye on our Newsroom for more helpful guides.