1. Home
  2. Loans
  3. Car Finance
  4. Should I part-exchange my car on finance?
Published 12 July 2021

Should I Part-Exchange My Car on Finance?

When you part-exchange a car on finance, you can trade in your existing car and put its value towards the cost of your new car purchase. Read on to find out how it works and if it’s right for you.

If you have a car on finance but, for whatever reason, you want to upgrade it or swap it for a cheaper model, you may be able to part-exchange it.

This isn’t the only option available to you, but part-exchanging your car on finance means you can trade in your vehicle and use its value towards a new car purchase. It can be a convenient way to change your car without needing to cancel your finance agreement or pay off your car finance early, but it may not be right for everyone.

Read on to find out how part-exchanging a car on finance works and whether it is a suitable option for you.

What does part-exchanging a car mean?

When you part-exchange a car on finance, it simply means that you trade in your current car for a new one.

You can use the value from your existing car towards your new car purchase.

Part-exchange is popular because it allows you to sell and buy a car in one go, with the dealer managing the paperwork, rather than you needing to separately organise the sale of your current car and then the purchase of a new vehicle.

At the end of a PCP finance agreement, you can choose to return your car and part-exchange it for a new car. You can use any equity in your current car as a deposit for the new finance agreement.

Alternatively, you could part-exchange your car during a finance agreement, although you need to consider how much you owe and how much your car is worth to see if it makes financial sense to do this.

How can you part-exchange a car on finance?

To part-exchange a car on finance, you first need to know your car’s current value and how much you have left to pay on your finance agreement. You will have to ask the finance company for the settlement figure you need to pay to clear your finance.

In an ideal situation, your car will be worth more than the outstanding finance left to pay, which would mean you are in positive equity and you could use this towards a new car.

For example, if your outstanding finance is £7,000 and your car is worth £8,000, you have £1,000 in equity to put towards a new car. Bear in mind that the dealer handling the part-exchange may offer slightly less for your current car than you could get elsewhere, so they can make money from the transaction.

Once you agree to a part-exchange, the dealer would then clear your finance and put the leftover value in your car towards your new purchase. They will also handle all the necessary paperwork, including notifying the DVLA about the change in ownership.

If you want to buy your new car with cash, the dealer should factor in the value of your old car and then adjust the new car price accordingly. If you want to take out a new car finance agreement, this value can act as some, or all, of the deposit.

When you part-exchange, you will need to hand over all the relevant accessories and paperwork for your current car, including the V5C (logbook), the car’s manual, and the MOT and service documents.

If your car is on finance, you will need to provide further information, including the settlement figure and the details of your finance provider.

You don’t need to part-exchange your car at the same dealer that you first purchased your car from, so you can compare costs from different places. You can also choose to part-exchange online or in-person at a dealership.

What if I’m in negative equity?

If your car is in negative equity (when the remaining amount on your finance is worth more than the car), then you won’t have any value to put towards a new car. Some dealers may offer to add on this negative equity to a new car finance deal.

For example, if your car was worth £8,000 but you owe £8,500, you would have negative equity of £500. A dealer may then add this £500 onto your new car finance agreement, so you would pay it off along with your new car.

While this may seem an easy way to pay off this negative equity, because you would borrow more on your new finance agreement, you pay more interest and you also increase the risk of getting into further negative equity. For example, if your new car is worth £15,000, with the £500 added on from your previous agreement, you would be in negative equity before you even drive off in your car as you would owe £15,500.

So, if you are in negative equity, it would be better to wait until you are in positive equity or, if you want to change cars now, pay off this sum if possible.

» MORE: Negative equity and car finance explained

Should I part-exchange my car?

Part-exchanging a car might seem an easy way to swap your car on finance, but it won’t make sense for everybody.

If you are in negative equity, then part-exchanging may not be the best option, at least for now, as you won’t be able to put any value towards your new car.

But even if you are in positive equity, part-exchanging isn’t your only option.

You should always investigate all your options as the dealer offering the part-exchange won’t always offer the best price for your car. Dealers are likely to offer you less for your car than if you sold it to a private buyer, so you pay the price for choosing a time-saving option.

If you are happy to put the work in to sell your car privately, this will often get you more money for your car. However, you would need to organise the advertising and the paperwork around the sale, and you would also need to have the money to pay off your finance early to be able to sell your financed car.

Once you have sold your car, you can then use the money from the sale to buy a new vehicle or for a deposit on a new car.

It’s up to you whether you prioritise convenience over the possibility of getting more money from a private sale, but it is essential to research all the costs before making a decision.

Part-exchanging tips

If you decide to part-exchange your car, there are some things you can do to try and get the best deal.

Alternatives to part-exchange

Part-exchange may not be the only option available, although this will depend on your circumstances and why you want to swap your car. Some possible alternatives to part-exchange include:

Image source: Getty Images

About the Author

Rhiannon Philps

Rhiannon has been writing about personal finance for over three years, specialising in energy, motoring, credit cards and lending. After graduating from the University of Cambridge with a degree in…

Read More
Dive even deeper
How a Dad Ditched his Doorstep Loan to Get Out of Debt and Start Saving

How a Dad Ditched his Doorstep Loan to Get Out of Debt and Start Saving

If you’re struggling to get a loan, you may think high-cost credit is your only option. But there are more affordable ways to borrow money, including joining a credit union, as one father-of-two found out.

Thinking of a Loan? Beware of the Fee Scam that  Could Cost You Hundreds of Pounds

Thinking of a Loan? Beware of the Fee Scam that Could Cost You Hundreds of Pounds

With more people turning to borrowing during the cost of living crisis, it’s even more important to be vigilant against loan fee fraud and other types of scams. Find out how loan fee scams work and what you can do to beat these fraudsters.

How a Credit Union Helped Make a Christmas Wish Come True

How a Credit Union Helped Make a Christmas Wish Come True

Christmas can put extra pressure on our bank accounts, but a credit union could help you to save up or get an affordable loan. Find out how a credit union is helping one young family this festive season.

Back To Top