Negative equity is something many motorists hear about, but not everyone understands.
If you're currently financing a vehicle and thinking about changing it, negative equity can affect the options available to you.
The good news is that it doesn't automatically prevent you from buying another vehicle or changing your finance agreement.
Understanding what negative equity is and the choices available can help you make an informed decision.
What Is Negative Equity?
Negative equity occurs when the amount you still owe on your finance agreement is greater than the current value of your vehicle.
For example:
Vehicle value: £14,000
Outstanding finance balance: £16,500
Negative equity: £2,500
In this example, selling or part exchanging the vehicle would leave a shortfall of £2,500 that still needs to be settled.
Why Does Negative Equity Happen?
Negative equity can happen for several reasons.
The most common include:
• Vehicle values reducing faster than expected
• A low or zero deposit at the start of the agreement
• Long finance terms
• Higher annual mileage than originally anticipated
• Changes in the used vehicle market
It's a normal part of vehicle ownership for many motorists and doesn't necessarily indicate a problem with your finance agreement.
Can You Still Change Your Vehicle?
Yes — in many cases, you can.
Depending on your individual circumstances, you may be able to:
Refinance Your Existing Agreement
If your current agreement no longer suits your circumstances, refinancing may help provide a more manageable solution.
Carry the Negative Equity Forward
Some finance agreements may allow the outstanding shortfall to be incorporated into a replacement vehicle agreement, subject to lender criteria, affordability and acceptance.
Pay the Difference
Some customers choose to settle the shortfall themselves before changing vehicles.
This reduces the amount being financed on the next agreement.
Continue With Your Current Agreement
In some situations, the most suitable option may simply be to continue making payments until more equity has built up.
Every Customer Is Different
There isn't a single solution that works for everyone.
The most appropriate option depends on:
• Outstanding finance balance
• Current vehicle value
• Income and affordability
• Credit profile
• The replacement vehicle being considered
Speaking to an experienced finance specialist can help identify the most appropriate route.
How Eurodrive Can Help
At Eurodrive Motor Finance, we work with customers and dealerships across the UK to explore suitable finance solutions.
Whether you're looking to refinance your current agreement, understand your settlement figure or explore your options for changing vehicles, we're here to help.
Our experienced team will explain your options clearly and help you make an informed decision based on your individual circumstances.
Speak to Eurodrive
If you'd like to discuss your current vehicle finance or understand whether negative equity affects your next purchase, we'd be happy to help.
👉 Contact the team today.
