Negative equity on vehicle

garyinvi

In January I will need to start dealing with a finance company in relation to negative equity on a vehicle, currently I owe about 35k but the car value is only about 15k, is anyone in a similar situation or has anyone got words of wisdom to offer?

Eric Cartman

as soon as you drive a car off the forcourt your in negative equity. Car finance isnt like house finance, they wont write down a loan because the car is worth less , best you can hope for really is the half paid rule, pay half the total finance cost and hand the car back

Chuck Stone

garyinvi wrote: »

In January I will need to start dealing with a finance company in relation to negative equity on a vehicle, currently I owe about 35k but the car value is only about 15k, is anyone in a similar situation or has anyone got words of wisdom to offer?

All cars (bar collectors cars that may go up in value) are in negative equity the moment they're registered.

The word you're looking for is 'debt'.

http://www.mabs.ie/

Senna

Is it bought on Hire Purchase?
Are you aware of the "Half Paid Rule" and you dont even need to wait till you get to half way through the agreement (but that means putting money against the it)
http://www.nca.ie/nca/car-finance-debt

Idbatterim

In January I will need to start dealing with a finance company in relation to negative equity on a vehicle, currently I owe about 35k but the car value is only about 15k, is anyone in a similar situation or has anyone got words of wisdom to offer?

If buying new maybe...

readytosnap

Just out of curiosity what kind of vehicle is it? that is a massive difference in value/ debt.

the only way i see is the half paid rule as mentioned earlier, if the car is repossessed and sold at auction you will be rightly screwed (financially)

you could park it in clondalkin for half an hour and hope someone robs it and burns it, at least you will get more for it than at an auction.

finance companies in my experience are all a shower c*nts, is there a way you could borrow the money from the credit union maybe? you might get an early settlement fee though it would not be much less than the outstanding amount

Valetta

readytosnap wrote: »

Just out of curiosity what kind of vehicle is it? that is a massive difference in value/ debt.

the only way i see is the half paid rule as mentioned earlier, if the car is repossessed and sold at auction you will be rightly screwed (financially)

you could park it in clondalkin for half an hour and hope someone robs it and burns it, at least you will get more for it than at an auction.

finance companies in my experience are all a shower c*nts, is there a way you could borrow the money from the credit union maybe? you might get an early settlement fee though it would not be much less than the outstanding amount

You've insulted the good people of Clondalkin and all the legitimate finance companies in one short post.

Way to go. :rolleyes:

corktina

If the car is only worth €15000 now and it gets robbed, the Insurance would pay out €15000 I suspect (at most) and the Finance Co would still be owed €20k

djimi

How exactly does finance work if a situation like this can arise where there is such a huge disparity between the amount owed and the value of the car? Is it just that repayments are not high enough to cover the cost (I know there is often a large payment needed at the end of the agreement if you want to keep the car), or is it just that they charge such huge rates of interest?

seamus

corktina wrote: »

If the car is only worth €15000 now and it gets robbed, the Insurance would pay out €15000 I suspect (at most) and the Finance Co would still be owed €20k

I think that depends on the type of loan. For a straightforward unsecured personal loan, you're right, but I think for motor loans the loan is tied to the vehicle. If the vehicle is stolen or destroyed, then the bank take whatever cash and the loan is finished.

Could totally be talking out of my arse though.

How exactly does finance work if a situation like this can arise where there is such a huge disparity between the amount owed and the value of the car? Is it just that repayments are not high enough to cover the cost (I know there is often a large payment needed at the end of the agreement if you want to keep the car), or is it just that they charge such huge rates of interest?

It shouldn't really arise that there's this level of disparity between the vehicle value and the actual loan. Most motor loans are for a maximum of five years, so even after 2.5 years you would expect to get €15-€20k minimum for a car that's €35k new, and at that stage the balance on the motor loan will be in the region of €20-€25k. Granted, the OP doesn't say how much the car cost when new, but for that kind of debt to build up on it, I suspect that he has either not been making his repayments for quite a while, or the car has been damaged in such a way that it's worth so much less.

threebeards

djimi wrote: »

How exactly does finance work if a situation like this can arise where there is such a huge disparity between the amount owed and the value of the car? Is it just that repayments are not high enough to cover the cost (I know there is often a large payment needed at the end of the agreement if you want to keep the car), or is it just that they charge such huge rates of interest?

The repayments are set, normally at equal amounts, over the term of up to 60 months generally. As has already been said, the car depreciates over the term and that depreciation starts as soon as the buyer drives out the gate. The big problem for people who bought, mainly in 2008/9 is that car prices have seen a substantial drop as there is less demand. High end cars have been hit hardest as there is little or no demand for them. You mention a large payment at the end to keep the car - that was called a balloon payment and normally it meant that the buyer would pay a smaller monthly repayment and either pay a large lump sum at the end of the term, or trade in the car for that amount at the end of the term and start again. The correction in prices of cars, coupled with the unavailability of finance and loss of employment has now left people stuck with the car they have and not being able to fund the lump sum. Interest rates weren't any higher from finance companies than they were from banks - in a lot of cases those rates were lower.

Terrontress

seamus wrote: »

I think that depends on the type of loan. For a straightforward unsecured personal loan, you're right, but I think for motor loans the loan is tied to the vehicle. If the vehicle is stolen or destroyed, then the bank take whatever cash and the loan is finished.

Could totally be talking out of my arse though.
It shouldn't really arise that there's this level of disparity between the vehicle value and the actual loan. Most motor loans are for a maximum of five years, so even after 2.5 years you would expect to get €15-€20k minimum for a car that's €35k new, and at that stage the balance on the motor loan will be in the region of €20-€25k. Granted, the OP doesn't say how much the car cost when new, but for that kind of debt to build up on it, I suspect that he has either not been making his repayments for quite a while, or the car has been damaged in such a way that it's worth so much less.

People have often tried to sell me gap insurance which pays the gap between insurance payout and finance owed in the event of the car being written off.

threebeards

readytosnap wrote: »

finance companies in my experience are all a shower c*nts,

There's obviously a specific reason you say that?

MugMugs

If you owe 40k and your insurer gives you 20k in a payout then you're still liable for the other 20k owed.

Gap insurance covers the "gap" so if you have it (and it's costly) then theoretically they cover the remainder of the finance.

mickdw

How could anyone get into such a situation?

bazz26

Unlike property or land, the value of a car only decreases, taking out such a large amount of finance on a depreciating asset was never going to end well. Financial madness but this was the norm during the Celtic Tiger when borrowing money was cheap and reckless.

MugMugs

Retrospect is a great thing.... I doubt the OP requires reminding of that.

justsomebloke

bazz26 wrote: »

Financial madness but this was the norm during the Celtic Tiger when borrowing money was cheap and reckless.

But due to the nature of new car financing has this not always been and will continue to be the case.

A car will always lose money on a sliding scale with the biggest hits happening over the first few years however repayments aren't set up to reflect this as you have equal repayments so I would just assume all new cars bought on finance are in negatitive equity for the majority of the term loan?

Are you struggling to meet the payments or do you want to sell the car and want to know what to do with the outstanding finance?

bazz26

justsomebloke wrote: »

But due to the nature of new car financing has this not always been and will continue to be the case.

A car will always lose money on a sliding scale with the biggest hits happening over the first few years however repayments aren't set up to reflect this as you have equal repayments so I would just assume all new cars bought on finance are in negatitive equity for the majority of the term loan?

We don't know what the OP bought, they could have bought something that was more fashionable and affordable to others during the good times meaning it had a steady depreciation curve as there was still a demand for it on the used market. But now that we are in harsher times the car has little or no demand so it's resale value has since nose dived even further hence the suituation that the OP is faced with now.

RobAMerc

Eric Cartman wrote: »

as soon as you drive a car off the forcourt your in negative equity.

Chuck Stone wrote: »

All cars (bar collectors cars that may go up in value) are in negative equity the moment they're registered.

Lads you need to qualify this - all cars bought on finance ( depending on the % finance too ) will be in negative equity instantly
If you pay cash money it will just devalue - not be in negative equity.

Eric Cartman wrote: »

Car finance isnt like house finance, they wont write down a loan because the car is worth less

Do they, really ? I'm not so sure about that - its not been happening here in Ireland ( thank god ) as I'd have to take up the slack ( as a taxpayer ) I presume.

R.O.R

Using my mad Paint Skillz, I've drawn a graph which accurately reflects the situation that generally happens when you finance a vehicle.



Not very accurate as at the end of the term the should be nothing left to pay, but the asset will have value.

mickdw

Everyone appears to be ignoring deposits that would be paid when buying the car new so given that some percentage would be cleared off on day one, and going with some of the current finance deals that might want 30% up front, the car could well always be worth more than what's owed on it. I figure this is how the banks like it too.