Thousands In Negative Equity on their Cars
Plunging car prices are leaving thousands of Motorists in ' Negative Equity' on their vehicle loans experts have warned.Many predicted future values on which car finance deals are based are well above what the actual vehicle will be worth.
It means many car buyers are in the same position as those whose mortgages are larger than the value of their home.The problem is worse for those who have bought their cars on Personal Contract Purchase deals which totalled £ 2.3 billion in 2007 PCP's involve making monthly payments over a fixed period and then a final payment to secure ownership based on what the predicted value of the car would be worth. However these estimates are now highly inaccurate with predicted future values proving much higher than current values.
Examples such as
a 2 year old Volvo XC90 with a predicted value of £ 18775.00 now is actually worth £ 12600.00 some £ 6175.00 less than expected
a 2 year old BWM 750i with a predicted value of £ 22400.00 now is acutally worth £ 15600.00 £ 6800.00 less than expected
This situation only goes to enhance the Leasing or Contract Hire route both for Business and personal use when aquiring a new vehicle were the second hand value is on the shoulders of the finance company not the individual !
Food for thought
Contract Hire is an agreement between you and a leasing company to run a car over a specific period and mileage. In return you pay a monthly rental. You never own the car but pay for its use. One of the existing advantages of contract hire is the smoothing of cash flow requirements, it also keeps open other lines of credit, such as bank loans and overdrafts for business development. Alistair Darling has added to these benefits. Until now there has been an expensive car leasing disallowance on the rental. This applies to cars that cost in excess of £ 12000.00
In simple terms, it restricts the amount of the rental you can claim against your profit & loss ( P&L) Account.
From April 2009, Alistair Darling has swept that disallowance away and replaced it with a restriction based upon CO2 emissions.
All rentals will now be allowable for cars with CO2 up to 160g/km, subject to the private mileage proportion. For cars with emissions in
excess of 161g/km there is a flat rate disallowance of 15%.
for Example under the present expensive car Honda Civic 1.8 VTEC Type S on currently available on contract @ £ 224 + vat under the
present leasing allowances you can claim £ 199 against the P&L account , however from April 2009 it will be the full £ 224
( subject to private mileage restriction) that can be claimed.