Negative equity is a term that most of us old enough to remember only ever associate with the housing market.
When negative equity is used in the motor industry simply means that you owe more on your vehicle than it is worth.
OK I know why would anyone knowing want to be in negative equity who would?
Well negative equity is a natural part of vehicle ownership. You buy a vehicle it looses money sorry it is a fact of life. In fact depending upon how much deposit you have been able to use and the type of vehicle you have purchased it is perfectly normal to be in negative equity very early on into finance agreement.
Let me show you how.
I have just spoken to a customer who has just bought a Ford Focus got a very good deal and paid £14995. He had a £1000 deposit and finance the balance over 4 years.
Now lets look into the future and what would happen if his car was written off.
According to What Car’s depreciation Calculator by the end of year two his focus edge could be worth as little as £8250.
In this case he would be in negative equity of approximately £500 but hey that is what gap insurance is form isn’t it.
Well yes but what happens when you need to change your vehicle and you are already in this situation. Circumstances and family lives change and so do your motoring needs.
So what happens if you need to change your vehicle and are already in negative equity.
Did you know that in most cases this would mean that a standard gap insurance policy would not cover any negative equity. So if you ever needed to make a claim any amount of negative equity you have carried forward would be taken away from any settlement due.
For example another customer has just bought a Jaguar s type. Beautiful car very low mileage but because of a change in job they need to change their car early. This means that they where carrying forward nearly £4,500 negative equity. Of they had bought a standard gap insurance policy up to £4500 would have been taken away from any gap insurance payout.
If you are in debt and need help you can always also try the government debt help agencies.
So if you are in any form of negative equity ask your gap insurance supplier for a specialist policy and make sure that your policy protects not just your current vehicle but the negative equity as well.