Can you part exchange a car on finance?

The short answer is yes. Yes, you can usually part exchange a car that's still on finance. Plenty of drivers upgrade their car while still on finance, and having finance outstanding doesn't automatically rule it out.

However, the catch is that your existing finance has to be settled as part of the process. So before you start looking at your next car, you need to know two numbers:

1. How much finance is left to pay on your current car
2. How much your car is actually worth

Comparing those two figures tells you where you stand, and it's where two terms come into play: positive equity and negative equity.

Positive and negative equity: what they mean

Equity is simply the difference between what your car is worth and what it would cost to settle your finance. Whether it's positive or negative changes what happens next.

Positive equity

If your car is worth more than your settlement figure, you have positive equity. In the example above, that's £3,000. Depending on the deal and the lender, it could go towards your next car.

Negative equity

If your car is worth less than the amount needed to settle your finance, you have negative equity. In the example above, there's a £3,000 shortfall that has to be dealt with before your current agreement can be settled.

There may be different ways to handle that shortfall, depending on your circumstances and your current agreement. Whatever the situation, make sure you understand the figures before agreeing to anything. The same applies if you'd rather sell privately: our guide on selling a car on finance explains how.

Mistakes to avoid before you part exchange

Before you rush into anything, check these three things. For more pitfalls to watch for, see 5 common car finance mistakes and how to avoid them.

Early settlement charges

Depending on your agreement, settling early may come with costs or conditions. Ask your current finance provider, and if there are charges, make sure you fully understand them. Our guide to the pros and cons of paying off your car finance early covers this in more detail.

Mileage and condition on PCP

If you're on a PCP agreement, check the terms around mileage and vehicle condition. These may be relevant when you end your agreement. New to PCP? Start with what is PCP car finance and is it right for you?

Taking the first valuation

Don't assume the first offer you get is the best one. Different dealers can offer different amounts, so it's worth shopping around.

Steps to Part Exchanging a Car on Finance

Step 1: Get a Settlement Figure

First, contact your current finance provider to request a settlement figure – this is the amount needed to pay off your existing finance agreement.

Step 2: Get a Valuation for Your Car

Next, find out how much your car is worth. You can do this by:

• Checking online valuation tools.
• Getting quotes from dealerships.
• Comparing prices for similar models.

Step 3: Compare the Figures

Once you have both the settlement figure and your car’s valuation, compare them to see if you have positive or negative equity.

Step 4: Choose a New Car and Finance Option

If you decide to proceed with part exchanging, the dealership will settle your existing finance and put any remaining equity towards your new car. If you have negative equity, discuss with the dealer how you can manage the shortfall.

Step 5: Complete the Paperwork

Your dealer will handle most of the admin, including contacting your finance provider and arranging the new finance agreement.

Things to Consider Before Part Exchanging

• Check for Early Repayment Charges: Some finance agreements include fees for settling early.
• Be Aware of Mileage and Condition Rules: If your car is on a PCP agreement, excess mileage or damage could affect the trade-in value.
• Shop Around: Different dealerships may offer different valuations, so compare offers before making a decision.

Final Thoughts

Part exchanging a car on finance is a straightforward process if you follow the right steps. Whether you have positive or negative equity, understanding your options can help you make the best financial decision.

At carloans 365, we can help you explore part exchange options and find the best deal for your next car. Get in touch today to see how we can assist you!