Car equity release

What is car equity release?

Car equity release is a loan secured against a vehicle the borrower already owns. The lender advances a share of what the car is worth, registers security over it for the term of the agreement, and pays the money to you or into your business. The car stays with you throughout.

It runs in the opposite direction to ordinary car finance. Buying a car on finance means a lender pays a dealer and you end up with a car. Car equity release means you already have the car, and the finance turns part of its value back into capital. Nothing is sold and nothing changes hands.

The advance is a share of value rather than the whole of it. 50 to 70 per cent is the working band across the market, and the gap between the value and the advance is the lender's margin for the cost and the uncertainty of selling the car if the payments stop.

Who is car equity release for?

Owners with capital tied up in a car and a use for it elsewhere. In practice that divides into a few recognisable situations, and the reason for the release matters, because it changes which lender is the right one.

The commonest is a business needing working capital, where the director owns a car outright and would rather borrow against it than take money out of the company or sell an asset that is holding its value. The second is funding the deposit on another car, where the equity in the current one becomes the deposit on the next and the two agreements are arranged together as one piece of work.

The third is settling a final payment falling due at the end of an existing agreement, where the owner wants to keep the car and would rather not write one large cheque. The fourth, less common but the one where the numbers are most striking, is releasing capital against a car that has appreciated, where the asset securing the borrowing has been going up rather than down.

How much equity is in my car?

Equity in a car is what it is worth now, less anything still owed against it. Own a car worth £200,000 outright and the equity is £200,000. Owe £60,000 on the same car and the equity is £140,000. That subtraction is the whole calculation and it is worth doing before speaking to anybody.

The figure to use for the debt is the settlement figure, not the balance on your statement. The settlement figure is what your current lender will accept today to close the agreement, and it usually includes interest to the settlement date and sometimes a charge for settling early. Ask for it in writing at the start.

Positive equity means the car is worth more than the debt against it, and it is the position you need to be in for any of this to work. Negative equity means the debt exceeds the value, which happens on cars that fall faster than the balance does. No amount of restructuring releases money from a car in negative equity, and a broker who tells you otherwise is not being straight with you.

What cars do we release equity against?

We hold indicative values for 92 models across 16 manufacturers, from £30,000 at the bottom of the range to £5,400,000 at the top. Every marque has a page showing what each model is worth and what a lender would typically advance against it.

The pattern is specialist rather than prestige for its own sake. What these cars have in common is that a volume lender cannot price them from a trade guide, so the underwriting has to follow the individual car: its condition, its history, its originality and its specification. That is slower than a desk exercise and it produces a defensible figure rather than a convenient one.

If your car is not on the list it does not mean we cannot help. It means we have not written a page about it yet, which is a different problem and yours to ignore.

• Bugatti 5 models £1,500,000 to £5,400,000
• Pagani 5 models £1,800,000 to £5,400,000
• Koenigsegg 5 models £1,800,000 to £3,650,000
• Ferrari 8 models £199,355 to £2,500,000
• Aston Martin 5 models £165,000 to £2,500,000
• Mercedes-AMG 5 models £98,000 to £2,350,000
• Lamborghini 11 models £165,000 to £2,200,000
• Lotus 5 models £30,000 to £2,040,000
• McLaren 6 models £185,000 to £1,800,000
• Bentley 5 models £176,000 to £1,650,000
• Porsche 16 models £51,000 to £1,500,000
• Rolls-Royce 5 models £245,000 to £420,000
• Maserati 5 models £35,000 to £211,000
• Nissan 2 models £75,000 to £150,000
• Jaguar 2 models £55,000 to £85,000
• Ford Performance 2 models £56,000 to £62,000

What does car equity release cost?

A worked example. A car at £200,000, owned outright, with £140,000 released against it at 70 per cent of value. Over 48 months at an indicative 8.9 per cent, that is about £3,477 a month and £166,909 in total across the term.

The total is the number worth comparing and it is the one most comparisons leave out. Two offers at the same monthly payment can differ substantially once the term, the fees and the early settlement position are set beside each other. A longer term always looks cheaper monthly and is almost always dearer overall.

The rate follows the car, the borrower and how much of the value is being advanced. Asking for 50 per cent of value rather than 70 generally improves the rate, because the lender's exposure falls, and on most cases that trade is worth more than negotiating the rate directly.

How car equity release is arranged

Four steps, and the first is short. We ask what the car is, what you believe it is worth, what is still owed on it and what the money is for. That conversation establishes whether there is a workable case, and it happens before anything touches your credit file.

We then approach the lenders whose appetite fits rather than all of them, because a credit file full of searches is worth less than a clean one. You see terms in writing, with the total cost across the term and the early settlement position set out rather than buried.

The lender values the car, which usually means an inspection rather than a desk exercise. Documents follow: identification, the V5C, the service history, and for a company application the filed accounts and bank statements. Security is registered, the money is released, and the car stays exactly where it is.

Alternatives to car equity release

Selling the car releases the whole value rather than a share of it, ends the running costs, and is almost always the cheapest way to turn a car into money. It also means not having the car. Where the car is ordinary and easily replaced, this is usually the right answer and we will say so.

Unsecured borrowing avoids putting the car at risk, which is a real advantage and not a small one. It is generally dearer and generally smaller, because the lender has nothing to fall back on. At the sums involved on the cars we cover, unsecured lending frequently will not stretch far enough to be relevant.

Refinancing without releasing capital is the third option, and it is worth naming separately because it is often what people actually need. Where the aim is a lower monthly payment rather than a lump sum, that is car refinance and it is a different piece of work with a different answer.