Can you part exchange a car on finance?

What does part-exchanging a car on finance mean?

Part-exchanging means trading your current car in against the price of a new one, rather than selling it separately.

When your car still has finance on it, the dealer will contact your finance company to find out exactly how much you owe. This figure is called a settlement figure. Once it's cleared, the deal works the same as any other part-exchange.

How does part-exchanging a financed car work?

• The dealer asks your finance company for a settlement figure — the exact amount needed to clear your agreement that day.
• They value your car based on its age, mileage and condition.
• They compare the two figures. If the car is worth more than the settlement figure, you're in equity. If it’s worth less, you're in negative equity.
• The dealer pays off your old finance agreement directly.
• Anything left over goes towards your next car, usually as a deposit if you're taking out finance again.

When can you part-exchange a car on finance?

You can part-exchange at any point — you don't need to wait until your agreement is paid off.

Timing still matters though. Earlier into your contract, especially with a personal contract purchase (PCP), you're more likely to owe more than the car is worth, particularly if it depreciates quickly. Waiting until you've paid off more of the balance often puts you in a stronger position.

What happens if your car is in negative equity?

Negative equity means the settlement figure is higher than what your car is worth. If this is the case, you have a few options:

• Pay the difference before you part-exchange
• Add the shortfall to your new finance agreement, so you borrow more to cover it
• Keep paying your current agreement until you're no longer in negative equity, then part-exchange

Rolling negative equity into a new agreement means paying interest on money you already owed — so total interest costs will be higher over the term of the new deal. As with all finance options, it’s worth doing the sums before you decide how to proceed.

What should you consider when part-exchanging a financed car?

A few things can affect how good a deal you get, so it's wise to check these before you start.

• Ask for an up-to-date settlement figure before you start shopping — but note that it changes daily as interest builds up.
• Get your car valued by more than one dealer, so you know if the offer's fair.
• Check whether selling privately would get you more than a trade-in (it can take more time and effort though).
• Keep your service history and receipts handy — a well-maintained car usually values higher.
• Ask if there's an early settlement charge on top of what you owe.

What is voluntary termination on car finance?

Voluntary termination is different from part-exchange. It's a legal right under Section 99 of the Consumer Credit Act 1974.

If you've paid at least half the total amount payable on your hire purchase or PCP agreement, you can hand the car back and walk away, as long as it's in reasonable condition. You may still be charged for damage beyond fair wear and tear or for exceeding a mileage limit, but you won't owe anything further on the finance itself.

That half of the total amount payable includes interest and fees, not just the car's value, so it's worth checking the exact figure with your finance company before you go down this route.

Can I pay off my car finance early?

Yes. You have the right to settle your agreement early, whatever stage you're at. Ask your finance company for an early settlement figure — usually your outstanding balance adjusted for interest, plus it may include a fee. Settling early is a common step before part-exchanging, especially if it takes you out of negative equity first.

How to get the best deal when part-exchanging a financed car

A little preparation before you visit a dealer can make a real difference to what you're offered.

• Get your settlement figure sorted before you visit a dealer so you know where you stand.
• Shop around — get valuations from more than one dealer, not just the one you're buying from.
• Negotiate the part-exchange price and the new car price separately.
• Fix any minor faults and give the car a clean before valuation — small things can affect the offer.
• Avoid rolling negative equity into a new deal if you can help it - paying it off first usually works out cheaper.

Deciding what's right for your financed car

Part-exchanging a financed car is usually straightforward once you know your settlement figure and whether you're in equity or negative equity.

If your circumstances have changed and you're struggling with payments, voluntary termination or early settlement might suit you better than trading in for another car. Either way, always check the figures with your finance company before you commit to anything.