PCP equity explained: positive equity, negative equity and part exchange

On a PCP agreement, "equity" simply means the difference between what your car is worth and what it would cost to settle the finance on it:

If the car is worth more than the settlement figure, you're in positive equity. If it's worth less, you're in negative equity. Neither is unusual — where you sit depends on your specific agreement and how the car's value has moved since you took it out. See our settlement figure guide for what the settlement figure itself actually includes.

Two worked examples

Illustrative figures only.

Part exchange with finance outstanding

You can part-exchange or sell a car that's still on PCP finance — it's routine. The dealer (or buyer) arranges for the settlement figure to be paid to your finance provider first, directly out of the sale or part-exchange value, and you receive whatever's left. If there's a shortfall instead, you'll usually need to cover it before the deal can complete, or have it added to a new agreement.

Why equity isn't fixed — and doesn't only improve

It's a common assumption that simply making more payments steadily builds equity, the way paying down a mortgage builds it on a house. PCP doesn't quite work that way, because two things are moving, not one:

• Your settlement balance falls as you make payments — predictably, since it follows the agreement's own repayment schedule.
• The car's market value falls independently, usually faster in the first year or two of ownership than later — and how fast varies a great deal by make, model, mileage and condition. See our Car Depreciation Calculator for an illustrative estimate.

Whether your equity position improves, worsens, or stays roughly flat over time depends on how those two figures move relative to each other — not simply on how long you've been paying. A car that depreciates faster than expected can put you into negative equity even while you keep paying on time; a car that holds its value well can move you into positive equity faster than the agreement's own schedule would suggest.

Why the official settlement figure matters

Because equity is a difference between two numbers, getting either one wrong changes the answer. A vehicle valuation is always somewhat approximate, but a settlement figure doesn't have to be — your finance provider can give you the exact amount. Before making a decision that depends on your equity position, request that figure rather than relying on an estimate.

Last reviewed: 30 August 2026.