Equity is simply what the car is worth minus what you owe on it. Worth more than the settlement figure and you have positive equity — real money you can put toward the next car. Worth less and you have negative equity, which changes your best move entirely.
Check your equity
You need two numbers: a settlement figure from your lender, and a realistic valuation of the car.
Getting the two numbers right
Your settlement figure
Ask your finance provider — they must supply it, and it is usually valid for around 28 days. Do not estimate it by adding up your remaining payments: the settlement figure is lower than that, because it includes a statutory rebate for interest you have not yet incurred.
Your car's value
This is where people go wrong, because there are three different values and they are far apart:
- Trade / part exchange value — what a dealer will give you. The lowest figure, and the right one to use if you are part exchanging.
- Private sale value — what you would get selling it yourself. Typically several hundred to a few thousand pounds more.
- Retail value — what a dealer would sell it for. Not what you will get, so don't plan around it.
Use the value matching what you actually intend to do. Comparing a retail valuation against your settlement figure will show equity you cannot realise.
Equity on a PCP is not the same as equity in a house. A car depreciates, so equity usually peaks somewhere in the middle of the agreement and then narrows as the balloon approaches. There is often a window where part exchanging is unusually favourable — and it closes.
What to do with positive equity
- Put it toward your next car. The dealer settles the finance and applies the surplus as your deposit. Straightforward, and the most common route.
- Sell privately and pocket the difference. More work — you settle the finance yourself — but usually realises noticeably more than a part exchange.
- Pay the balloon and keep the car. If the car is worth well above the balloon, buying it is effectively purchasing at below market value.
Whatever you do, don't let equity evaporate by simply handing the car back at the end of a PCP. Return the keys and any surplus value goes to the lender, not to you.
What to do with negative equity
- Keep the car. Often the position improves as the balance falls faster than the value.
- Hand it back at the end of a PCP. This is precisely what the GMFV guarantee is for — if the car is worth less than the balloon, that shortfall is the lender's risk. See how the balloon payment works.
- Consider voluntary termination. Once you have paid 50% of the total amount payable you can hand the car back and walk away, which erases negative equity outright. Check your position with the VT calculator.
Be wary of rolling negative equity into a new agreement. Dealers will often offer to absorb the shortfall into your next deal. It is legal and sometimes reasonable, but it means starting the new agreement already owing more than the car is worth — and the problem compounds if you do it twice.
Common questions
How do I get my settlement figure?
Ask your finance provider directly — they are obliged to give it to you, usually valid for about 28 days. It is lower than the sum of your remaining payments because it rebates interest you have not yet incurred.
Can I use equity as a deposit?
Yes, and it is the usual route. The dealer settles your existing finance and applies the surplus to the deposit on the next car. Selling privately generally realises more, if you are willing to handle the sale and settlement yourself.
Why is part exchange worth less than a private sale?
A dealer has to prepare and resell the car at a profit, so they bid below market. The gap is typically several hundred to a few thousand pounds — that is the price of the convenience.
Does equity matter if I'm handing the car back anyway?
Very much. If you have positive equity and simply return the keys at the end of a PCP, that value goes to the lender. Part exchanging or selling instead puts it in your pocket. This is the most commonly missed money in car finance.
How often should I check?
Every few months is plenty. Values move with the market, and knowing you are in an unusually strong position is exactly the sort of thing that is only useful before you have committed to something.
Track your equity as it changes
Motorise keeps your balance up to date and gives you a one-tap vehicle valuation, showing your equity for part exchange, trade and private sale — so you always know where you stand.
This calculator gives an estimate for general information and is not financial advice. Your equity position depends on an accurate settlement figure from your lender and a realistic valuation for the sale route you intend to take. Vehicle values move with the market and can change materially in a few months.