Why can’t you swap car finance to another car?
In short, you can’t swap car finance from one car to another because the finance deal is specific to i) your circumstances at the time of taking out the contract and ii) the car itself.
The car finance provides take several factors into account when assessing your application (as shown below), and they influence whether you are eligible and the terms of your agreement.
As a result, you can’t simply swap your finance to another car, this is because the agreement has been made specifically in line with the information about you and the car you’ve chosen at that time.
These factors include:
- your financial circumstances at the time (e.g. your income, outgoings and employment status)
- the value of the car (as we know, this depreciates over time, so the finance agreement is based on the value of the car when you take out the contract, and at specific points throughout the agreement period)
- time-sensitive offers or packages at the dealership (it’s common for dealerships to offer certain offers or benefits that are only available for a certain time)
To change your car midway through your contract could substantially increase the risk for the lender, so they normally won’t allow it. However, there are ways to upgrade your car before your repayment period ends on hire purchase and personal contract purchase agreements.
Upgrading your car while on finance
Most finance agreements are taken out over several years. You may think at the very start of the agreement that you couldn’t possibly want to change the car within that time, but you never know what’s going to happen. Maybe you bought a two-seater sports car and you have a baby on the way, for example.
If for whatever reason, you need to change or upgrade your car while you have outstanding finance, there are options you can look into. The right course of action for you will depend on your individual circumstances.
Ask for a settlement figure
If you’re looking to change or upgrade your car, the first step is to get in touch with your finance provider and request a settlement figure. This figure represents the amount of money you still owe, including interest, on your car finance agreement. Before you can change cars, you will need to pay this balance off in full and become the legal owner. Bear in mind, this figure will only be valid for a specified amount of time (set by your provider).
Be aware though, in some circumstances, you may be charged early repayment charges and/or charges for unreasonable wear and tear. So, be sure to read the details of your agreement before agreeing to pay a settlement figure.
If you have positive equity in your car (that is, if the current value of your car is higher than the outstanding balance), then you could use the difference as a deposit towards your next car.
To do this, you need to contact your lender and ask if it’s possible to part-exchange (or trade in) your car - though it doesn’t have to be the same dealership you got your current car from. They’ll usually do the legwork for you, including getting you an early settlement figure so you can pay off your existing finance.
If you have negative equity though, (that is, you owe more than the car is worth), you’ll need to pay the difference and find the deposit for a new car out of your own pocket.
Note, if you are leasing your car, there won’t be an option part exchange it. This is because you can only part-exchange a car that you own. with personal contract purchase (PCH) you essentially rent the vehicle, and you never actually own it.
Consider settling the balance and selling the car yourself
Another option is to go it alone: settle your outstanding balance and sell the car yourself.
Remember, though, if you have an HP agreement, you do not own the car until you’ve made your final payment. Once it has been paid in full, ownership will transfer to you from the car finance provider, and then you’ll be able to sell it.
If you have a PCP agreement, you only take full ownership of the car when you make the lump sum ‘balloon payment’ at the end – on top of your monthly repayments. So, this will need to be included in your settlement figure. Once you are the legal owner, then you will be able to sell the car.
Can I transfer my existing car loan to another bank?
If you’re happy with your car but less happy with your finance agreement, you may wish to keep the car but change your finance provider. There’s a host of reasons why you may want to do this, perhaps you’ve seen a better deal, or you’re looking to extend the term and reduce your payments – whatever the reason, the good news is that it is possible to refinance your agreement.
When you refinance, you pay off your existing balance in one go with money you’ve borrowed from your new lender. Your agreement with your previous lender is then closed, and you have a new one where you continue to make your monthly payments but with a different lender and, potentially, a better rate (if you’re eligible).
Before you go ahead and refinance or consolidate your debts, make sure you consider your options carefully. You may be able to lower your monthly repayments by spreading them over a longer term, but this could cost you more in interest in total.
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