Equity release for car finance

Car finance equity is the balance between what your car is worth and what you still owe. It can be confusing, so let’s look into it in more detail to answer any questions you might have.

What is equity in car finance?

Car finance equity refers to the portion of ownership you have in your vehicle. 

It's essentially the difference between the current market value of your car and the remaining balance on your auto loan. 

In simpler terms, it's like the chunk of your car that you truly own outright amidst the ongoing loan payments. Understanding equity is crucial because it gives you a clear picture of where you stand financially with your vehicle.

Positive equity means your car is worth more than you owe, so you can make money if you sell it once your loan is paid off. Negative equity is when your loan is more than your car is now worth.

What does positive equity mean on a car?

Positive equity on a car signifies that the current market value of your vehicle exceeds the remaining balance on your auto loan. 

In other words, it's like having a financial cushion – if you were to sell your car today, you'd pocket some extra cash after settling your loan. Positive equity is ideal for car owners. It means your car is worth more than you still owe on it. This turns your vehicle into a valuable asset.

What is the difference between positive and negative equity?

Positive equity is when the market value of your car surpasses the outstanding balance on your auto loan. It's like being in the black, indicating that your car is worth more than what you owe. 

On the flip side, negative equity occurs when the remaining loan balance exceeds the current market value of your car. It's akin to being in the red, signifying that you owe more on your loan than what your car is worth. Negative equity can pose financial challenges and impact your ability to sell or trade in your vehicle.

But if you’re in this situation, don’t worry. At Car Finance 247, we work with a panel of trusted lenders, some of whom can provide finance options if you’re in negative equity.

How do I find out how much equity I have in my car finance?

Finding out how much car finance equity you have is a straightforward process that involves a bit of number crunching. Here's how you can do it:

1. Determine your car's current market value: Start by researching the current market value of your car. You can use online car equity calculator, check similar listings in your area, or consult with car dealerships to get an estimate.

2. Check your loan balance: Next, gather information about the remaining balance on your auto loan. This can typically be found on your loan statements or by contacting your lender directly.

3. Calculate the equity: Once you have both figures, subtract the loan balance from the car's market value. The result is your equity.

By following these steps, you can gain a clear understanding of how much equity you currently have in your car finance.

How do I know if my car is positive or negative equity?

Determining whether your car has positive or negative equity involves a straightforward calculation. You simply subtract the remaining balance on your car loan from its current market value. 

If the result is positive, it means your car is worth more than what you owe. If the result is negative, you're in the negative equity territory, indicating that you owe more on your loan than what your car is worth.

What is an example of equity on a car?

Let's illustrate with an example. Suppose your car is valued at £15,000, and you owe £12,000 on your loan. By subtracting the loan balance from the car's value (£15,000 - £12,000), you arrive at £3,000 – voilà, that's your equity. This £3,000 represents the portion of your car that you truly own outright amidst the ongoing loan payments.

Can I release equity from my car?

Yes, you can get equity from your car. But, it's important to understand the involved implications and considerations. Here are a few options to consider:

1. Refinancing your car loan: One way to release equity from your car is by refinancing your existing car loan. This involves replacing your current loan with a new one. The new loan often has better terms, like a lower interest rate or longer repayment period. By refinancing, you may be able to access the equity built up in your car and potentially lower your monthly payments.

2. Car equity loan: Another option is to take out a car equity loan, also known as a title loan or logbook loan. With this type of loan, you borrow money against the equity in your car. The amount you can borrow is typically based on the value of your car and your ability to repay the loan. Keep in mind that car equity loans often come with higher interest rates and fees compared to traditional auto loans though.

3. Sell or trade-in your car: If you have positive equity in your car, you can release equity by selling or trading in your vehicle. By selling your car privately or trading it in at a dealership, you can use the money to pay off your existing loan and pocket the remaining equity. 

Can you release equity on car finance?

Yes, releasing equity on car finance is indeed possible, but it's not always straightforward. It typically involves strategies like refinancing your existing loan or opting for a car equity loan.

Equity release can give a needed boost. But, it's essential to think about the potential downsides before proceeding, which can include higher interest rates.

What is the downside to equity release?

While car equity release can provide immediate access to cash, it's important to weigh the potential downsides. 

Depending on the method you choose, you might end up extending the duration of your loan or facing higher interest rates. 

Also, if your car's value drops unexpectedly, you could find yourself in a tough financial spot with more debt.

Can a bank refuse to release equity?

Banks have the prerogative to refuse equity release if they perceive it as too risky. Factors such as a significant depreciation in your car's value or a history of missed payments can influence their decision. 

It's important to keep good credit and check your finances before seeking equity release. This will increase the chance of approval.