http://www.telegraph.co.uk/motoring/...ve-equity.html
Drivers who bought prestige models have been worst hit because the nose dive in second-hand prices means they owe significantly more than the cars are worth.
According to Auto Express, the shortfall for drivers across the country has now reached £272 million.
Buying a car is often a family's biggest financial transaction apart from home purchase.
Thousands of motorists try to spread the bill through a system known as Personal Contract Purchase.
This entails putting a deposit down and then paying monthly instalments for two or three years, before having the option to buy the car outright.
The final payment – known as a balloon payment – is based on what the car is expected to be worth at the end of the contract.
But the collapse of the second hand market has meant that the amount demanded by finance companies is often far more than the car is actually worth.
According to CAP, one industry analyst, in December 2006 the "predicted value" of a Volvo XC90 D5 S two years later was £18,775.
But this car is now estimated as being worth £12,600 – leaving the motorist with a choice between paying £6,175 more than the car is worth or handing it back to the finance house.
The Finance and Leasing Association, the trade body representing finance houses which handle the business, admitted that thousands of drivers were returning the cars rather than pay more than they were worth.
As a result more second hand cars are being put onto the the market, forcing their price down even further.
"This is hitting people wanting to get high aspiration vehicles at an affordable price will have been hit by the crash in value," said an AA spokesman.
"They should be approaching the finance house as well as the dealer to see what the options are.
"These could be very expensive cars and the losses could be crippling because of the change in the financial world."
Drivers who bought prestige models have been worst hit because the nose dive in second-hand prices means they owe significantly more than the cars are worth.
According to Auto Express, the shortfall for drivers across the country has now reached £272 million.
Buying a car is often a family's biggest financial transaction apart from home purchase.
Thousands of motorists try to spread the bill through a system known as Personal Contract Purchase.
This entails putting a deposit down and then paying monthly instalments for two or three years, before having the option to buy the car outright.
The final payment – known as a balloon payment – is based on what the car is expected to be worth at the end of the contract.
But the collapse of the second hand market has meant that the amount demanded by finance companies is often far more than the car is actually worth.
According to CAP, one industry analyst, in December 2006 the "predicted value" of a Volvo XC90 D5 S two years later was £18,775.
But this car is now estimated as being worth £12,600 – leaving the motorist with a choice between paying £6,175 more than the car is worth or handing it back to the finance house.
The Finance and Leasing Association, the trade body representing finance houses which handle the business, admitted that thousands of drivers were returning the cars rather than pay more than they were worth.
As a result more second hand cars are being put onto the the market, forcing their price down even further.
"This is hitting people wanting to get high aspiration vehicles at an affordable price will have been hit by the crash in value," said an AA spokesman.
"They should be approaching the finance house as well as the dealer to see what the options are.
"These could be very expensive cars and the losses could be crippling because of the change in the financial world."
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