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What is negative equity?

Negative equity is a term that you may have heard quite a lot when talking about car finance, but many people aren’t entirely sure what it means and what the consequences of having negative equity and getting car finance.

Equity is the difference between the amount you owe to the finance company and what your car is worth. If your car is worth more than what you owe to the finance company, then you have positive equity. If the car has less value than what you owe to the finance company, then you have negative equity.


what is negative equity finance

How does negative equity affect car finance? 

Negative equity will usually be a problem at the end of your car finance deal. For example, if your settlement figure with the finance company is £6,000 and your car is worth £4,500, you will have a negative equity value of £1,500. This is because your car has lost its value quicker than you are repaying the car loan. The value of your car will not cover the amount you owe the lender, when it comes to selling or part exchanging your car on finance.

Negative equity is more common than you think and most drivers will be in negative equity at the start of their agreement. This is due to the rate at which your car loses value, known as depreciation. Cars will always lose their value at the beginning of a car finance agreement – in the first year of your agreement, the value of your car will take the biggest hit – but it can become an issue if it is still happening towards the end of your agreement.

It is also more likely you will end up with negative equity if you have a Personal Contract Purchase finance agreement and put down a small deposit, due to the large balloon payment at the end of the deal. Negative equity can also affect car finance when you take your finance agreement over a long period of time.

Is negative equity car finance possible? 

At Refused Car Finance, we strive to make car finance as accessible as it can be for as many customers as possible. As a car finance broker, we have access to multiple finance lenders at once and our specialist lending panel has been designed to help people with even the most adverse credit file. We believe car finance with negative equity should be as easy as any other form of finance. If you’re approved by one of our lenders, the negative equity will be absorbed into a new finance deal on another car which means the amount you owe your previous lender will be added to your new deal. We appreciate this can be a more expensive way to finance another car but it can be a good option for those who have no other option regarding their current car. 

How to apply for car finance with negative equity? 

If you’re wondering if we can help you finance a car with negative equity, we only need to take a few details from you! We need to learn more about you and then one of our finance experts will give you a call to discuss your current position. We then put your application in front of our specialist lenders to see if they could help finance a used car with negative equity. If approved, you can then choose a used car from any FCA dealership and pay for it over a term that suits you. The amount you owe your previous lender will be absorbed into your new finance deal. 

man making online application on mobile

1. Make a free, no-obligation application with no effect on your current credit score.

discussing negative equity car finance

2. One of our finance experts will be in touch to discuss your negative equity. 

received car finance approval

3. If approved by one of our lenders, you can choose a used car from any FCA dealer. 

How to get out of negative equity on a car? 

If you have negative equity on a car and don’t want to get a new loan, it’s understandable. Whilst negative equity car finance can be possible, it can mean a more expensive loan, which in the long run may not be the most cost-effective. If you’re in this position, there are other actions you can take to get out of negative equity on a car. 

1. Settle the loan in full. 

The most common way to end your negative equity deal is to pay it off in full. You can request a settlement figure from your lender and if it’s more than your car is worth, you can pay off the amount in full at the end of your deal. This will settle the outstanding finance and there are no more payments to be made. 

2. Continue to pay off the agreement. 

Another option for negative equity customers is to continue to pay the finance on your current car. Once the finance left to pay is less than the value of the car, you will be able to get a new finance deal with no negative equity to settle. 

See how we can help you!

Our finance experts are on hand to help with your negative equity car finance issues. Make a free, no-obligation application with us today and we’ll get in touch with a decision for you. Applying with us won’t harm your credit score either!