In car finance, Equity refers to the difference between the value of a vehicle and the amount left on the car finance agreement.
For example, if your car is worth £5,000 and there is £3,000 left to pay on the car finance agreement, there is £2,000 equity left in the value of the vehicle. Equity is referred to as negative equity when the amount left on the car finance agreement is more than the value of the car. For example, if your car is worth £4,000 but there is £6,000 left to pay on the car finance agreement, there is £2,000 of negative equity.
There are several situations when the equity left in the value of your vehicle may become an important figure to note. If for any reason you need to settle your car finance agreement early, you may need to sell or part-exchange your car to pay the settlement figure (the amount of money still owed on the car finance agreement, plus any early settlement fees).
If your car is worth more than the settlement figure, then you will be able to pay the figure using proceeds from the car with some equity left over. However, if your car is in negative equity (worth less than the settlement figure), you will still need to pay the remaining amount on the settlement figure.
If you choose to upgrade your car, you will also need to settle your current finance agreement early and take out a new agreement. With Creditplus, even if you took out your original finance policy with a different company, we can accept your vehicle in a part-exchange to settle your current finance and use any remaining equity as the deposit for your new finance agreement.
If there is negative equity, Creditplus may be able to provide a top-up loan to run alongside your new car finance agreement to cover this amount, depending on your affordability and credit circumstances.
If you think Creditplus will be able to assist you with your car finance, then apply now and one of our experienced customer advisors will call you to discuss your options.
If you crash your car and there is still finance left to pay on the vehicle, you may be in negative equity if the amount that your insurance company pays out does not cover the amount left on the finance. Whilst you can continue to pay off the monthly repayments, many people would rather choose to settle the finance early, thus allowing them to take out another car finance policy for a new vehicle.
If you require further assistance, our team of Customer Advisors are here to help. We're open six days a week - you can view our opening hours here - and we're more than happy to answer your questions.