Thousands of motorists will be in negative equity on their vehicle loans due to the reduced car prices. Many predicted future values on which car finance deals are based, work out well above what the vehicle is now worth. For example a two year old Volvo XC90 with a predicted value of £18,775 now has an actual value of £12,600 according to car data analysts. A 2006 BMW 750i with a predicted value of £22,400 is worth £15,600 a drop of 44 percent.
The problem is worst for those who have bought their cars on personal contract purchase finance deals, these contracts involve making monthly installments and then a final payment after two years to secure ownership of the car based on what the vehicle is predicted to be worth. The estimates now prove to be highly inaccurate.
The total shortfall between what is owed on car loans and the values of the vehicles could be as much as £272 million.