Negative car equity is when your car is worth less than the remaining finance. For example, today your car is worth £10,000 however you have £12,000 of finance to pay still. This puts you in negative equity of £2,000.
Below are some of the reasons you might experience negative equity:
1. Your finance agreement is fairly new
At the start of your finance agreement, the total amount you owe the finance provider may include the amount you’re borrowing (the value of the car), the interest, and any fees. The initial amount of finance owed can be greater than the value of the car. Cars also typically depreciate in value once they are driven. As the cars depreciation slows, and you continue to make your monthly payments you will likely reduce the amount of negative equity.
2. Your car is not in the best condition
It's important that you look after your car to help it keep its value. This means keeping it clean and getting any damage repaired to a good, professional standard.
3. Market changes and industry challenges
Consumer trends, local demand, laws and legislation and supply challenges can all impact a cars value. These are macro elements outside of customers’ control, but may have an impact on the cars value.
4. You put down a low deposit
If your deposit was small, the amount of finance owed is larger. This means more monthly payments are required to bridge the gap getting you closer to parity, or positive equity.
If you're ever unclear about your car finance position speak to your finance provider. They should be able to give you advice based on your finance product and personal situation.
