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 the term used to describe trading in your old car when you buy a new one. Essentially, it allows you to use your existing vehicle to cover part of the purchase price of your next.

How does part exchange work?

Typically, part exchanges are negotiated with the dealership that is selling you a new car. They’ll assess your current car and put a value on it. If you’re happy with that valuation, you can allow the dealer to buy it from you, but instead of giving you the cash, the amount will be subtracted from the purchase price of your new vehicle. You’ll then need to pay the remaining discounted amount to take ownership of the new car.

If you’d prefer to take out a car finance agreement to buy the vehicle instead of purchasing it outright, the value of your part exchange car will act as your loan deposit (assuming you own your existing car outright). But you’ll need to borrow the remaining amount.

Can you part exchange a car on finance?

If you’re currently in a car finance agreement, part exchange can be a little more complicated. However, it’s not impossible. Whether it’s the right option for you depends on your individual needs and circumstances.

You can usually only part exchange a car with outstanding finance if the vehicle’s value is higher than the outstanding settlement figure – this means you’re in positive equity.

When you’re in positive equity, your new finance provider or the car dealership can settle the remaining finance on your behalf. They’ll then use the equity – the difference between your car’s value and the settlement figure – as a deposit in a new agreement.

When you have an HP or PCP agreement, your loan is secured against the car, so you won’t own it until you reach the end of the loan term - and pay the balloon payment in a PCP agreement. You’d need to settle your existing finance before you can sell or part exchange the vehicle early.

Similarly, if you’ve reached the end of your PCP agreement and want to part exchange the car rather than buy or return it, you’ll be able to use any equity to secure a new deal.

What documents will I need to part exchange a car?

If you’ve decided to part exchange your car, there are a few things you can do to prepare:

  • Clean the car thoroughly inside and out
  • Collect any spare sets of keys and car accessories, such as your parcel shelf
  • Gather your documents – you’ll need the service record, MOT certificate, any garage receipts, and the V5C registration document

When you choose to apply for car finance alongside your part exchange, you’ll also need to have:

  • A full UK or EU driving licence
  • Bank details
  • Proof of ID (e.g., your passport)
  • Proof of address (e.g., a utility bill)
  • Proof of income (e.g., three months’ payslips or bank statements)

How can I find out the value of my part exchange car?

There are many factors than can determine the part exchange value of a used car. Unfortunately, all cars depreciate, or lose value, over time. The rate of depreciation can be influenced by several factors, including the car’s age, mileage, colour, and condition.

If you want to find out how much your part exchange car could be worth, you can browse online listing sites to see the current selling price of vehicles like yours. Make sure that you’re comparing like for like, as a newer model or version with a higher specification may be priced differently from your car.

While depreciation isn’t an exact science, there are a few steps you can consider to help your car retain its value over time:  

  • Clean the car thoroughly inside and out
  • Keep it in good working order and fix any signs of wear and tear
  • Keep your mileage low
  • Drive carefully and keep up with the recommended car maintenance schedule
  • Choose a car from a reputable manufacturer
  • Don’t add any divisive modifications such as an oversized stereo or distinctive colour scheme
  • Buy an older car – new cars lose most of their value within their first few years of life

What are the pros and cons of part exchange?

Benefits of part exchange

One of the biggest reasons to part exchange a car is that you don’t have to worry about finding a buyer. This could save you time and hassle. There’s no need to advertise, field phone enquiries, stay at home for viewings, or haggle with prospective buyers. Instead, the dealership or lender will take care of it.

Disadvantages of part exchange

On the flip side, your part exchange car’s value might be lower than the amount you could have earned by selling it privately. A dealership needs to make a profit as well as covering their overheads, so they may be unlikely to go above the basic trade-in value. You might also find it difficult to negotiate on price, as the dealer will be aware that you’ve already found your next car and don’t want to lose it.

What is negative equity?

Negative equity occurs when the amount you owe on your car finance is more than the vehicle is currently worth. Depreciation is unpredictable and can be influenced by factors beyond your control, such as the used car market and consumer trends. A make, model or colour that was highly desirable when you first bought your car might have fallen out of favour by the time you come to part exchange years later.

Negative equity is quite common, but it usually only becomes a problem if you’re looking to part exchange a car on finance during your loan term. If your car is worth less than the settlement figure (i.e., the amount you still owe), you won’t have any money left over to put down as a deposit. In fact, you might have to dip into your savings to cover the difference if you want to change vehicles early. If you find yourself in negative equity at the end of a PCP agreement, then you may wish to return the car to the lender rather than pay the higher balance to own or part exchange the vehicle.

Alternatives to part exchange

If you’re not sure if part exchange is a good choice for you, there are other options to consider when looking to buy a new car.

When your HP finance agreement ends, you could choose to sell the car privately and use the cash for your new car deposit. It might be more time consuming, but you can often secure a better price for your used car by selling it yourself. Don’t be afraid to market your car on social media or use an online listings site to reach a wider audience.

If you find yourself in negative equity, you might also be eligible to apply for negative equity car finance. This type of car loan is designed to cover the cost of your outstanding settlement figure as well as the purchase price of your new car, combining both amounts into one affordable monthly payment.

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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender.

Disclaimer: All information and links are correct at the time of publishing.

Verity Hogan, Personal Finance Writer

Verity Hogan

Personal Finance Writer

Verity is a personal finance writer and journalist with over 13 years of experience working in a variety of industries, including 3 years specialising in motoring and debt. She contributes engaging, informative guides on everything you need to know on debt consolidation and car finance for Ocean.