Can I Part Exchange a Car on Finance?

What is a part exchange?

If you part exchange your financed car, you’re trading it in for a new one, and putting any proceeds from the exchange towards the new purchase. Part exchange will typically be more convenient than a private sale, as the dealer will manage all the paperwork. It’s also a way of changing car without having to either pay off your car finance early or cancel it outright.

Where you’re eligible for part exchange, it can be a great way of finding a new set of wheels. However, not everyone is eligible for a part exchange – it’s contingent on what kind of car finance you have.

Who is eligible for part exchange?

You should be able to part exchange your car if you purchased a car on finance via either a Hire Purchase (HP) deal, Personal Contract Purchase (PCP) deal, or a personal loan. However, if you have financed your car via a PCH agreement, you won’t be eligible, as you are not the car’s legal owner at any point.

If you financed your car via a PCP deal, you can part exchange your car at the end of the finance agreement and put any value toward the new vehicle (or a deposit for the same).

You can also part exchange your car during your agreement – but whether or not this is a good idea depends on how much your car is worth, and how much you still owe. You’ll have to settle any outstanding balance before the part exchange can take place.

How to part exchange a car on finance

Before you think about part exchange, you need to know your car’s value, as well as anything you still owe to your finance plan. The value of your car will be affected by how much you’ve cared for it, but it’s also dependent on the car’s mileage, service history, and specification.

It’s best to go into a part exchange with a car that’s of greater value than any outstanding finance. That means you’re in positive equity. You can then put the positive equity toward the cost of a new vehicle. Furthermore,  remember that if you’re looking to purchase your new car by finance, the higher your deposit payment, the lower your monthly repayments will be.

You’ll need to get a settlement figure from your lender, too. This can sometimes include a final balloon payment and there may also be an early termination fee.

You may find you have a PCP deal that leaves you with a vehicle that’s worth more than your outstanding final payment. This is because you’re borrowing against the depreciation value of the car – not the purchase price. This puts you in a good position for a part exchange, as you’ll be in positive equity, as described above.

Be aware that you’ll also need the car’s logbook – known as its V5C – as well as any relevant paperwork, the vehicle manual, MOT and service documents. You’ll also need to disclose the settlement figure agreed on with your car finance provider.

What about negative equity?

If the amount remaining on your finance is more than the car’s value, then you’re in negative equity. You may still be able to part exchange the car. This would require either you or the company you’re part exchanging the car with to pay a lump sum, rolling any debt into a negative equity finance agreement.

Be aware that with a negative equity finance agreement you will be paying off both your old car and new car, so you will likely notice a serious increase to your monthly repayments. Interest rates will also be higher, and you’re at higher risk of going into further negative equity.

Talk to My Car Credit

If you’ve got questions about whether a part exchange is for you, contact My Car Credit today. We can address any concerns you may have and help you establish your car finance eligibility.