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Equity explained

Equity is the difference between what your car is worth and how much you owe for it.

Watch our video to learn all about the difference between negative and positive equity, what a parity position is, and how equity can help you finance your next car.

All about equity

If you’re repaying a car finance loan, equity is really important. Just like with a mortgage, it’s the difference in value between how much your car is worth and the amount you still owe. At the start of your plan, the total amount you owe the finance company will include the amount you’re borrowing, the interest on the loan, and any fees due.

Negative and positive equity

Because all cars start to depreciate from the very beginning, you might find the amount you owe is actually more than the car is worth. This is known as a negative equity position.

As you repay your loan, the value of your car will normally become greater than the amount you owe, which is what’s known as a positive equity position. Depending on the value of your positive equity, you could consider changing your car for a brand new one before the end of your finance plan.

Financing your next car

You may reach a point where you could change your car for a new one for a similar monthly payment. If this does happen, your dealer or finance company may get in touch with new offers for you to consider.

They can help you work out the equity left in the vehicle, and whether it’s enough for you to pay off any outstanding finance whilst still having enough to use as a deposit for a new car with a new finance plan.

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