Negative Equity Car Finance

What is negative equity on a car?

Negative equity means your car is worth less than the amount still owed on its finance. Owe £9,000 on a car worth £7,000 and you are £2,000 in negative equity. It is common and usually nobody's fault: cars depreciate fastest in the first years of an agreement, and long terms with small deposits keep the balance ahead of the car's value for a long stretch of the agreement. The problem comes when you need to change the car before the curves cross. Selling or part exchanging only raises the car's value, leaving the shortfall to be paid before the old agreement can close. For most people that shortfall is exactly the money they do not have spare, which is what makes negative equity feel like a trap.

How Hero's negative equity finance works

Hero arranges agreements of up to 120% of the new car's value, with the extra portion covering up to £5,000 of negative equity on your current finance. In plain terms:

• Your current car is valued and your settlement figure is obtained from your existing lender.
• The gap between the two is your negative equity.
• The new agreement is written for the new car's price plus that shortfall, up to 120% of the new car's value and a maximum of £5,000 of rolled equity.
• Hero settles your existing finance directly with your previous lender. You do not handle that payment.
• Your old car goes in part exchange, your new agreement starts, and you have one monthly payment.
• The mechanics matter: the settlement happens directly between Hero and your previous lender, so there is no stage where you need to find the shortfall in cash. The old agreement closes, properly and on record. Your old car feeds into the deal through part exchange car finance.

What to weigh before rolling negative equity

Rolling a shortfall into a new agreement means borrowing more than the new car is worth on day one, and it costs interest like any other borrowing. It is the right move when the car change is genuinely needed: the current car no longer fits your life, is costing too much to run, or the monthly payment needs restructuring. It is the wrong move done casually, since repeating it stacks shortfall on shortfall. Two things keep it sensible. First, the £5,000 cap is a real boundary: this is a tool for clearing a manageable shortfall, not refinancing a mountain. Second, terms up to 60 months on HP mean the combined balance can still land on a monthly payment that fits. Run the numbers through the calculator before deciding.

Negative equity with bad credit

The two often arrive together: a stretched agreement, a missed payment or two, and a car that no longer fits the budget that signed for it. Hero's panel includes lenders who take bad credit applications, and the negative equity facility works the same way for them. The deciding factor is the affordability of the new payment, not the tidiness of the story so far.

Frequently asked questions