When the car you have on finance is worth less than the amount you owe, this is called ‘Negative Equity’. This makes it difficult to change cars sooner. For example, if your car is worth £4,000 but your early settlement figure is £5,000, you have £1,000 negative equity.
Normally, when you sell your car to an online car buyer or, privately to someone for cash, you will need to find that £1,000 to clear the debt. Legally, you cannot sell your car without paying your finance company off, because until your last payment including any option to purchase fee is paid, the car legally belongs to them.
It’s difficult to know when to change your car sooner when negative equity is still in play. It’s a bit like “where’s that crystal ball when you need it?”. If you enter your details in to https://www.paymentswap.co.uk you can use this service free and quickly see when is the best time to swap for another car.
Negative equity is a common thing and quite normal in the early stages of the period of ownership, unless when you purchased your car you had enough deposit or equity in your old part exchange to mean borrowing less at the time.
Getting out of negative equity can be difficult if all you want to do is sell. But trading your car in at a dealership may mean they will lend more on finance to cover some of your negative equity. At Payment Swap, we specialise in adding your negative equity up to 125% to your new car and that means, typically there’s no deposit to pay and you could be driving a newer car for a single, affordable monthly payment.
Let’s look at your options?
1. Settle your loan using your savings
Find the money to pay the difference and pay off the negative equity so you can start afresh on your new car. This may be OK if you’re not needing that money for other essentials.
2. Continue as you are
Stay in your present car for longer until more of your loan is repaid. There are three problems with this. Firstly, whilst you’re paying your payments to remain in your car, it’s very likely that your car is depreciating each month at the same rate and can mean it will take even longer before you are in equity. The second issue here is that your car is getting older and is more likely the older it gets to run into running issues through additional wear and tear. The third scenario is more of an emotional one – and that is you’re just bored with your car and you want to be driving the newer model with more equipment and improved economy.
3. Mid-term finance
Add your present negative equity to your new agreement. Subject to status, some companies let you add your negative equity subject to status to your new payment. The maximum on a new loan should be no greater than 125% loan to value. This is usually only available to buyers with a good track record.
Avoiding negative equity
Here are the best ways to minimise the risk or negative equity on your future purchases:
- Keep your vehicle for at least 50% of the period of your loan. So, if you take out a 60 months agreement, plan to keep your next car for around 30 months.
- The higher your deposit or part exchange equity is next time, the chances of avoiding negative equity when you come to change is far less.
- Try to keep your yearly mileage as low as you can. Higher mileage cars depreciate faster than lower mileage cars. They have a higher resale value and cost less to maintain.
- Change your car before the MOT is due. This is when you may need to actually spend money on your car just to have an valid MOT certificate. You can check your car’s MOT expiry date at https://www.gov.uk/check-mot-history
How do I change my car with negative equity?
Enter your registration number in to the https://www.paymentswap.co.uk homepage and follow the quick and easy steps in front of you. As long as you know how much you owe on your old car (your part exchange (PX)) and how much you wish to pay per month, you can actually purchase a car in less time than it takes to watch Eastenders.
The Payment Swap website will work out what equity or negative equity you have and show you a large range of cars that you can swap your car to. The payment seen on each car displayed includes the dealer settling your finance off for you within the deal.
10 easy steps to taking a Payment Swap…
Here’s how easy it is to upgrade your car online and drive something you really want…
Step 1 – Add your reg number and how much you would like for your part exchange
Step 2 – Add your current monthly payment (so we can match you to similar cars)
Step 3 – Add how much you owe (you can get your settlement from your finance company)
Step 4 – Enter your first name (so we can address you properly)
Step 5 – Add your email address (so we can let you log in to your saved pages)
Step 6 – Search thousands of cars, fine tune your search and to match what you wish to pay
Step 7 – Use the filters to fine tune your search and pick the car you like
Step 8 – Get your guaranteed part exchange from us
Step 9 – Complete your online finance proposal (soft search)
Step 10 – Pay your £99 Admin Fee and watch the process start (you’ll be kept informed all way through)