Can you part exchange a car on finance?

Yes, you can part exchange a car on finance, but you may have to pay additional fees. If you owe more on your finance than your car is worth, or you’re ending your agreement early, you’ll have to pay a settlement fee.

6 min read
two sets of car keys and a contract

What is part exchange?

Part exchange is a way of getting money off the purchase of a new car by trading in your old one. It’s a popular option for car owners because it allows them to buy a new car and get rid of the old one in a single transaction.

How does part exchange work?

Part exchanging your car is a fairly simple process whether you own your car outright or have it on finance. However, if you haven’t fully paid off the finance on your car and you owe more than it’s worth, you’ll have to pay an early settlement fee. We’ll go into this in more detail in the step-by-step guide below.

Step one: have your car valued

The value of cars depreciates over time, so your car will be worth less now than when you bought it. It’s important to have an up-to-date valuation so you can ensure you’re getting a fair part exchange deal.

You can get a valuation estimate using an online tool, many of which are free. It’s important to remember, though, that online valuations are only estimates, and the final value of your car will depend on a number of factors (we’ll go into these a little later on).

Step two: request an early settlement figure

If you haven’t fully paid off the finance on your car, you’ll have to pay an early settlement fee. You can request this from your provider. The early settlement figure will equal the amount still owed on the car, including the interest, plus any charges required to pay off the finance early.

If your car is worth more than the settlement figure, the settlement can be paid off directly from the car’s part exchange value. Any remaining value (or ‘equity’) is then yours to use towards the new car.

However, if the car is worth less than the settlement figure, you’ll have to pay the difference. This is called ‘negative equity’ and it means that you won’t have any funds left over from the old car to put towards the new one.

Step three: get a quote for a new car

This is an important step, as knowing the price of your new car before you decide to part exchange will put you in a better position to negotiate a good deal.

Step four: use your equity towards a new car

Once you’ve completed the steps above, you can proceed with the part exchange. As long as your car isn’t in negative equity (worth less than the amount you owe on your finance agreement), you can use what’s left (after the settlement has been paid) towards the cost of your new vehicle.

What affects the value of my car?

There are several factors that can affect the value of your car. These factors include (but aren’t limited to) you car’s:

  • age and condition
  • mileage
  • MOT status

1. Age

Even if your car is in great condition, its age will affect its value. This is because car parts naturally deteriorate with time, even if they’re not used. The older the car, the more likely it’ll need parts repaired or replaced sooner, which makes it worth less than a new car to buyers. 

2. Mileage

Second to age, mileage is one of the biggest contributors to the depreciating value of cars. The higher the mileage of a car, the lower its value. This is because higher mileage increases the likelihood of wear and tear. The more wear and tear, the more likely a new owner is going to have to replace or repair parts of the car, which lowers its value.

3. Condition

Naturally, the condition of your car will affect its value. Any current wear and tear or damage will affect the valuation, as well as any previous damage and repairs or modifications.

It’s worth considering whether you want to fix areas of damage before getting the valuation and part exchanging. The cost to repair them beforehand may potentially be considerably less than the reduction in value as a result of not repairing them.

4. MOT

Whether your car has an active MOT (and how long is left on it if so) will also affect its value. Your car will be worth less if it doesn’t have a valid MOT, as buyers may assume this means that it’s in need of substantial repairs. On the other hand, the more time that’s left on an active MOT, the higher the value may be.

What if you owe more than your car is worth?

If you have a car on finance and you owe more than it's worth, there are still options that will allow you to part exchange the car. However, in most cases this will involve paying additional fees.

1. Pay a settlement fee

One option is to request to pay a settlement fee to get out of the car finance agreement. The settlement fee will equal the outstanding cost of the agreement, plus any interest. However, some finance providers have fees for repaying finance early, so it’s wise to find how much these may be before going ahead.

2. Take out a negative equity finance agreement

This option involves rolling over your remaining debt into a new finance agreement. In this case, your new provider will pay the settlement fee to buy the car directly from your current finance provider, and in doing so, close your existing finance agreement. They will then carry that debt over into a new agreement with you, so you pay off your old car and new one at the same time. 

3. Continue paying your current agreement

If you owe substantially more than your car is worth, then part exchange may not be the most suitable option right now. In this case it may be better to continue paying your current agreement until you owe less.

4. Voluntary termination

Under the Consumer Credit Act 1974, you have the right to voluntarily terminate your agreement without paying additional fees.

To be able to do this though, you must already have paid off at least 50% of the total finance amount (including any interest) - and the car must be in good condition. However, you won’t own the car once you exit the agreement and so you won’t be able to part exchange.

Can you part exchange a car on lease?

If you are leasing your car, you won’t be able to part exchange it. This is because you can only part exchange a car that you own. The monthly payments you make on your lease agreement are just for the privilege of being able to use the car, rather than contributing towards the purchase of it. So, as you don’t own a leased car at any point, you’re unable to part exchange it.

If you are experiencing difficulty paying your lease, it’s best to speak to your car finance provider straight away. They may be able to offer a reduced payment plan. Bear in mind that paying less than the agreed amount will affect your credit score. This could in turn, affect your ability to get finance in the future.

How soon can you trade in a financed car?

While there’s no fixed time for you to trade in a financed car, it’s wise to consider when it’ll be most cost effective to do so. If it’s going to cost you much more to trade in your car early (with early repayment fees, for example), it may be wise to wait until such a time where it works out less expensive.

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