A Guide to Negative Equity and How We Can Help

At Macklin Motors, we understand that negative equity can be a source of concern, particularly when you’re thinking about buying a new car. We're here to provide details on how to navigate it, offering options to help.

What’s negative equity?

Negative equity is when the amount you owe a finance company for your vehicle exceeds the value of your car.

Especially with new cars, this is entirely normal, so there's no need to be concerned. The vehicle's value naturally declines after it's registered with its first owner and driven out of the dealership. This decrease is an expected consequence of the car losing its "brand new" status. The key is to understand and effectively manage this change.

Negative equity is most commonly encountered when you wish to change your vehicle before the contracted financial term ends, or as you approach the conclusion of the contract. For instance, a Personal Contract Purchase (PCP) entails a final payment known as a guaranteed minimum future value or balloon payment. If this balloon payment surpasses the car's market value, the difference represents negative equity. Nonetheless, when the final payment is a guaranteed minimum future value payment, the lender covers it, irrespective of market value, therefore reducing any associated risks. Please note: the lender will guarantee the value providing the contractual requirements have been met (for example, the car is within the agreed mileage, and has been maintained according to agreed servicing requirements). 

Hire Purchase (HP) agreements typically involve a minimal end-of-contract payment fee, usually around £10. Therefore, as long as all payments over the agreed term are fulfilled, negative equity does not result.

How do I deal with negative equity on my car?

As it’s impossible to know how much a car’s market value will depreciate before it happens, handling negative equity on any car is difficult, but not impossible. Preventing negative equity is easier than trying to deal with it after it has happened.

An Asset Protection Plan (GAP insurance) can help. It will protect you from having to reach into your own pocket if your car is written off, stolen, or if your insurance company values your vehicle as less than you have financed.

If you have any questions, our helpful sales team at your local Macklin Motors dealership will be happy to discuss your options with you. 

I want to settle the car I have

There are a couple of options for you if your current vehicle is in negative equity. Your financial situation and how much negative equity there is attached to the vehicle will dictate what your best option is. As every case is different, we are happy to discuss your personal situation and work with you to come up with a solution.

I want to finance another car

You might want to finance your next vehicle, which is not a problem.

At Macklin Motors, we make the process as straightforward as we can and all we need from you is a settlement figure from your current lender. You can even give your consent for us to collect this on your behalf. 

What documents do I need to bring?

If you decide that financing a new vehicle with Macklin Motors is best for you, we will need two documents before you take delivery of your new vehicle: 

With these documents we can start the process of getting you into your new car and settling your previous financial contract. Our dedicated Macklin Motors team are here to guide you through the process and answer any questions you may have along the way. 

Explore our Newsroom for additional tips and guidance.