Crunch puts car buyers into negative equity

Published on Monday 5 January 2009 21:05

PLUNGING car prices will leave thousands of UK motorists in negative equity on their vehicle loans, it was forecast yesterday.

The shortfall between what is owed on loans for cars and their value could add up to 272 million.

The problem will hit buyers who bought their vehicles on personal contract purchase deals, which totalled 2.13 billion in 2007.

These deals typically involve making a series of monthly instalments, then one final balloon payment after two years to secure ownership of the car. This is known as the minimum guaranteed future value, predicted in advance and based on what the vehicle will be worth at the end of the deal.

But the slump in the market means these estimates are now highly inaccurate, with minimum guaranteed future values much higher than the cars are now worth.

Research by Auto Express magazine found shortfalls of up to 49 per cent between some cars' predicted value and their actual value.