Defined

What Is Negative Equity?

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Negative equity is when you owe more on your car finance than the car is currently worth. It traps you, because selling or part-exchanging won't clear the balance without extra cash.

Negative equity (sometimes called being 'upside down') happens when your car has lost value faster than you've paid the finance down. It's common early in an agreement and on fast-depreciating cars, and it limits your options to switch or exit.

How negative equity works

You're in negative equity when your settlement figure is higher than the car's market value — the gap is what you'd have to find to clear the finance. It's the opposite of positive equity.

It usually fixes itself over time as you pay down the balance, or you can clear the gap with cash, keep the car until you're back in positive equity, or roll it into a new deal (which adds cost). A bigger deposit and a shorter term help you avoid it. GAP insurance covers the gap if the car is written off.

A worked example

If your car is worth £9,500 but your settlement figure is £12,000, you're £2,500 in negative equity — the amount you'd need to clear the finance.

Worked example

Work out exactly how much you're under by, and your options to get out, on the negative equity calculator.

Frequently asked

What is negative equity on car finance?

Negative equity is when you owe more on your car finance than the car is currently worth — your settlement figure is higher than the market value. It's common early in an agreement and on cars that depreciate quickly.

How do I get out of negative equity?

You can keep paying until the balance falls below the car's value, clear the gap with cash, or roll it into a new deal — though that adds cost. Over time, negative equity usually corrects itself as you pay the finance down.

Can you part-exchange a car in negative equity?

You can, but the shortfall doesn't disappear — it's either paid in cash or added to your next agreement, which increases what you owe. It's usually cheaper to wait until you're back in positive equity before switching cars.

Work out your next step

Independent calculators — pick the one that fits your situation.

How negative equity works

You're in negative equity when your settlement figure is higher than the car's market value — the gap is what you'd have to find to clear the finance. It's the opposite of positive equity.