Negative equity is a phrase normally associated with the housing markets of the late 80’s and 90’s and while many thought that this financial threat had long eased you may be concerned to know that it is in fact alive and well and living in the motor industry.
So what is negative equity?
Why should you be concerned about negative equity and how can it effect you?
Negative equity as the name suggests is where your vehicle is not worth the amount that you have outstanding on finance. This is normally not a problem unless you decide to change your vehicle. Only then does the price that your vehicle is worth in relation to the outstanding finance become an issue.
The logical answer and the only sure way to avoid negative equity therefore is not to change our vehicle so often. Yes in an ideal world this is true but we do not live in an ideal world and sometimes there are circumstances beyond our control. Lifestyles change, financial status’s change and our vehicles have to be able to adapt.
Dealerships can help to refinance your loan or hire purchase agreement.
So how does this negative equity effect you if your vehicle is written off?
Please remember that most modern gap insurance policies will not have a market value clause so it will not limit the purchase price of the vehicle that you have bought. However your gap insurance policy will only protect the value of your replacement vehicle and not any amount of negative equity that you have carried forward from an other agreement.
This means that if your vehicle is written off then you could be left in the terrible position of having to go through the trauma of the loss of your vehicle and then having to fund negative equity.
The good news is that some polices although we stress not all will allow you to include a certain amount of negative equity.
So if you do have negative equity that you have carried forward you can still enjoy the same peace of mind that a standard policy would offer but also enjoy the increase protection of knowing that your negative equity is cover.