Can you part-exchange a car on finance?

Can you part-exchange a car on finance?

Want to know how part exchange works on a financed car?

Ultimately, it all depends on your situation, the type of agreement you have, and whether you've got any equity in the car.

Having a finance agreement may leave you feeling stuck if you want to switch to something newer, bigger, more economical - or just more exciting! You might be unsure what to do with your current car that's still being paid off.

This is where part-exchange can come in handy. It's a common route if you're looking to change cars without the hassle of selling privately. But if your car is still under finance, you might be wondering: is part-exchanging even possible? The simple answer is yes. But let's break it all down in more detail.

What does part-exchange mean?

Part-exchanging is a simple idea. It means trading in your current vehicle to contribute towards the payment for a new one. The dealer values your old car and knocks that amount off the price of the new vehicle. You only pay (or finance) the difference.

It's a popular option for drivers because it: 

• Saves time compared to selling privately 
• Can reduce how much you need to borrow for your next car 
• Makes the buying process smoother, as everything's handled in one place 

But what if your current car isn't fully paid off yet?

Can you part-exchange a car with finance?

Yes, you can part-exchange a car that's still on finance. Let's remind ourselves of the two most common types of agreement: 

Hire Purchase (HP): with HP, you make fixed monthly payments until the end of the agreement. You don't own the car until the final payment is made. If you want to part-exchange before then, the finance needs to be settled first. 

Personal Contract Purchase (PCP): PCP works a bit differently. You also make monthly payments, but there's an optional lump sum at the end (called a balloon payment) if you want to keep the car. If you don't, you return the vehicle. If you want to part-exchange, your settlement will have to include the value of that balloon payment. Otherwise, you'd be effectively trying to sell a car that you don't own.

Read our guide on the difference between HP and PCP to find out more.

In both cases, you can request a settlement figure from your finance provider. This is the amount you'd need to pay to clear your finance early. If the dealer offering your new car is happy to take your old one, they can often handle this on your behalf - settling the finance and putting any leftover value towards your new agreement.

How does part-exchange work on a financed car?

Here's how part-exchanging a car on finance usually plays out, step by step:

1. Get a settlement figure 📞

Contact your finance company and ask for a settlement figure. This is how much you need to pay to clear your finance in full. It's usually valid for a short period - 28 days here at First Response Finance.

2. Get your car valued 🚗

Ask one or more dealers how much they'd offer for your current car. You can also look online to get an idea of its value. 

3. Compare the two figures 💁🏾‍♂️

Now, compare your car's valuation to the settlement figure. You should find that you are in either positive or negative equity. 

Positive equity: if the car is worth more than the settlement figure, that difference (equity) can go towards your new car. 

Negative equity: if the car is worth less than the settlement figure, you're in negative equity. You'll either need to pay the difference or see if the dealership can include it in your new finance deal - the amount you can carry over is usually limited.

4. Finalise the deal ✅

If you're happy with the numbers, the dealer will: 

• Pay off the finance arrangement 
• Take your current car
• Apply any equity as a deposit on your next car

Can you give me an example of how part-exchange works on a financed car? 

Of course! For this example, let's say your settlement figure is £6,000. 

Scenario #1 - positive equity: the dealer values your car at £7,000. That's £1,000 in positive equity, which could be used as a deposit for your new finance deal. Win-win! 

Scenario #2 - negative equity: the dealer values your car at £5,000, so you're £1,000 short. You'll need to either pay that difference upfront or agree to roll it into a new agreement - something worth thinking carefully about.

How can I avoid negative equity?

Avoiding negative equity is all about getting ahead of depreciation from day one. You can do this by limiting the mileage and looking after the condition of your car. A larger upfront deposit can give you a better buffer, too, while making regular overpayments helps build up your equity faster.

What documents do I need for part-exchanging a car on finance?

Your dealership will likely ask you for the following, so it's best to make sure you're fully prepared before you pay them a visit. You'll need:

• Your vehicle logbook, also known as your V5C. This is a record of the registration and tax history of the car. 
• The car's service history (if it's had a regular service). You should be able to get this from the dealership or garage that undertook the service. 
• Any spare keys for the vehicle. Most cars are issued with at least a second set.

What do I need to consider before part-exchanging a car on finance? 

It's not just about whether you can part-exchange a car on finance. It's also about whether it makes sense for you. Here are a few key things to think about: 

Check for early settlement fees 👀

Some finance agreements include a fee for paying off early. Make sure you ask your lender about this, so you're not caught out. 

Did you know... First Response Finance doesn't charge any fees for settling your finance agreement early?

Be honest about your car's condition 

Dealers will inspect your car before agreeing to a part-exchange value. If it's got damage or faults, they'll factor that into the offer. Transparency avoids awkward surprises later. 

Understand your equity position 🤔

Are you in positive or negative equity? If you're in negative equity, rolling it into a new deal can seem convenient - but it may leave you paying more interest overall. 

Affordability 

Will the new monthly payments fit your budget? Don't let the excitement of upgrading cloud your judgement. Always look at the full cost of a new deal. 

Timing it right ⏰

If you're near the end of your agreement, it might be better to wait until you've paid off more of the balance - especially if you're close to break-even or positive equity.

How can I make sure I'm getting the best possible deal?

Want to make the most of your part-exchange on a financed car? Here are a few tried-and-tested tips:

• Shop around: get valuations from a few dealers or use trusted online tools to get an estimate. 
• Know your numbers: understand what you owe, what your car is worth, and what you can realistically afford. 
• Separate negotiations: try not to get too caught up in monthly payment figures alone. Look at the full cost and treat your part-exchange and new purchase as separate parts of the deal. 
• Be confident: don't be afraid to ask questions or walk away if a deal doesn't feel right. 
• Upgrade with purpose: ask yourself why you're changing cars. Is it for better fuel economy? Lower running costs? A change in family needs? Make sure the upgrade makes sense long-term.

Can you help me part-exchange a car on finance? 

Yes! If you want to part-exchange a car you've financed through us, we can help you with step one of the process - giving you your settlement figure. Just call our Account Management team on 01942 686 686 or email them at customer.services@frfl.co.uk. 

Or, if you want to part-exchange your car in a new finance agreement, we can help with that too. It's free, simple and takes only a few minutes to get a quote. We offer Hire Purchase loans of £2,000 to £15,000, repayable over 18 - 61 months. 

And we understand that changing cars isn't always straightforward - especially when finance is involved. That's why we work with a network of trusted dealers who can help guide you through the part-exchange process, from settling existing agreements to finding your next vehicle. You can find lots of useful information on managing your finance agreement and renewing your finance across our website.

We've been recognised as the Best Car Finance Provider at the Consumer Credit Awards, and 98% of our customers would recommend us. So, you can trust First Response Finance to support you every step of the way.