Is it possible to change cars when the value is less than the remaining loan balance? It is a possibility for many as long as they are within certain limits.
A negative equity situation exists when a borrower owes more on a car than it is actually worth. There are many factors that can contribute to negative equity.
A car owner that wants to sell a vehicle must satisfy the loan. The bank or financing company holding the loan can supply a settlement figure that shows the amount that must be repaid if the car is to be sold on a certain day.
While positive equity may be used to shore up a bank account or as a deposit down on the next vehicle, not every car owner has this luxury. When the transaction involves negative equity, cash must be brought to the table to settle the balance. There are options for this process.
Top-up loans can be structured in a way that borrowers can afford to make this payment along with their new car payment. Terms can be flexible, though they tend to favour an instalment arrangement of no greater than three years.
Private sales can be complicated, since it is the seller’s responsibility to make all of the arrangements to close out the old balance. Buyers will conduct a finance check to ensure that any existing financing has been fully cleared. Cars cannot be sold until the balance has been fully satisfied.
Enquiries may be made to a seller’s current finance firm or to solicitors that specialise in clearing negative equity through supplemental loan products. The advantage is that it allows for an owner to swap cars to meet changing income or life needs, such as to meet the needs of a growing family or disability.
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