Outstanding Finance & Equity
What happens when your trade-in still has finance owing: settlement, positive and negative equity, and what it does to the new deal.
If your current car is financed, the bank must be settled before it can be traded in. The dealer obtains a settlement figure and pays it out of the trade-in value. If the car is worth more than the settlement, the surplus is positive equity and becomes your deposit. If it is worth less, the shortfall is negative equity, which is usually added to the new finance agreement.
Negative equity is common in the early years of a long-term agreement or one with a balloon, because the balance falls more slowly than the car's value. It is not a barrier to trading in, but it means financing more than the new car costs, which raises the instalment and prolongs the cycle. Where you can, wait until equity turns positive or bring cash to close the gap.
Articles on outstanding finance & equity
Outstanding Finance & Equity — questions
The questions people ask about outstanding finance & equity, answered plainly.
Can I trade in a car that still has finance?
+
Yes. The dealer requests a settlement figure from your bank, pays it from the trade-in proceeds, and applies whatever is left to the new car. If the trade-in value does not cover the settlement, the difference is typically added to the new finance agreement, subject to the bank's approval.
What is negative equity?
+
Owing more on your car than it is currently worth. It happens when the value drops faster than the balance falls, which is common with long terms, small deposits or balloon payments. Trading in while in negative equity means the shortfall is carried into the new deal.
What is positive equity and how do I use it?
+
When your car is worth more than the settlement figure, the difference is yours. It is applied to the new purchase as a deposit, reducing the amount financed and the instalment. A well-maintained car on a shorter term reaches positive equity sooner than one on a long term with a balloon.
Can I avoid rolling a shortfall into my new finance?
+
Yes, by paying the shortfall in cash, waiting until the car has more equity, or choosing a less expensive new car so the combined amount stays affordable. Ask the dealer for the settlement figure and the trade-in value in writing so you can see the exact gap.
Ready to find your car?
Browse over 1 318 new cars, every one below the manufacturer's retail price.