Can I part exchange a car on finance?

What does part-exchanging a car on finance mean?

Part-exchanging your car on finance refers to trading in your financed car for a new one.

If you are in positive equity (i.e. the car worth more than the amount you owe), you can put the remaining cash towards the new car you want to buy.

However, if you are in negative equity (meaning the car is worth less than what you owe), the outstanding balance will be added onto your new finance agreement.

Part-exchanging can be a great option if you favour convenience, as it combines selling your car and buying a new one into a single transaction. The dealer will handle the paperwork, and you’ll also avoid the hassle of a private sale. For instance, there’s no need to advertise your car, meet viewers, or organise test drives.

What’s more, with a part-exchange, you can usually drive to a dealership in your current car, then leave in a new one within a couple of hours.

What to consider when part-exchanging your financed car?

• The salesperson will work out the details of the part-exchange deal based on how much equity you have in your old car against how much you’re paying for the new one.
• To make the process as transparent as possible, we recommend keeping the two deals separate.
• The best way to do this is to get a price for the car you’re interested in before revealing you want to part-exchange your old motor.
• Otherwise, it could be trickier to tell whether you’re getting a good deal, especially when there is finance involved.
• For example, they may offer you a good price for your old car, but then charge you extra for the new one. So, it’s usually better to negotiate the price for the new car first!

How does part-exchange work for a financed car? (step-by-step)

1. Request a settlement letter from your finance provider. This will specify the balance of the loan, which will be settled by the dealership. You must present the dealership with an in-date settlement letter. The figure quoted is usually valid for 28 days.
2. Get a part-exchange valuation for your motor with webuyanycar’s online tool. This will tell you your car’s market value - and help you determine whether you’re getting a good deal.
3. When you visit the dealership, the dealer will evaluate your vehicle.
4. If your car is valued above the settlement figure, you’re in positive equity, so you can put the remaining cash towards your new car. However, if you are in negative equity (meaning your car is worth less than the amount you owe), you’ll have to pay the difference, along with the deposit for your next car.
5. If you agree to part-exchange your car, the dealer should pay off the settlement figure and put any leftover cash towards your new car. If you’re buying another car on finance, this sum will usually be used as the deposit, which can help you save on your monthly payments.
6. Next, you’ll need to hand over the relevant documents and accessories. This may include the V5C logbook, manual, service history documents, owner's manual, and both sets of keys.
7. Finally, you’ll need to discuss the payment plan for the car you want to buy. You can utilise a car finance plan – or simply pay the outstanding balance on the new car outright. Only sign the paperwork if you’re completely happy with the deal.

What happens if my car is in negative equity?

If you sell or part-exchange a car that’s in negative equity, you will need to have the money to cover the difference between the amount you’ve received for the car and the settlement figure.

In some cases, a dealership may offer to add the negative equity to your new car finance plan. However, you should proceed with caution, as you risk going further into negative equity as the contract progresses, increasing your debt.

It’s important to understand that you’ll not only be paying interest on your new vehicle, but also the amount added on from the previous negative equity.

Before committing, make sure you clearly understand how much this will cost over the course of the loan. If possible, you should avoid carrying over negative equity.

Example of rolling negative equity into a new agreement

• Imagine you owe £4,000 more on your old car than what it’s worth (negative equity).
• The dealer offers to roll this £4,000 into your new finance deal.
• This means you’re paying interest twice on the same £4,000: once in your old agreement, and again in the new one.
• Your new car costs £30,000, but with the extra £4,000 debt, the amount repayable is £34,000.
• After adding interest and fees, you could effectively be paying around £38,000 for a £30,000 car.
• The new car will still depreciate at the usual rate, but you’ll start out with £4,000 negative equity before you’ve even driven it.
• If you face financial problems later, the extra debt makes it much harder to get out of the deal.
• What’s more, if the newly financed car depreciates faster than expected, your negative equity could increase even more.

Tips for part-exchanging a car on finance

• Before visiting the dealership, get an online car valuation. Knowing your car’s market value will put you in better position to negotiate.
• Preparing your car for resale, and ensuring it’s looking and running its best can help to maximise your part-exchange value.
• Wash and clean the car thoroughly to make a good first impression.
• Read the terms of the part-exchange deal carefully before committing.
• Don’t be afraid to walk away from the sale if you can’t negotiate a satisfactory offer.

Sell your financed car to webuyanycar

If you’re unhappy with an existing part-exchange quote, why not try selling to webuyanycar? We can buy your motor regardless of its age, mileage, and condition – even if it has outstanding finance! Here’s how it works:

1. Enter your reg number into our free car valuation tool.
2. Book your appointment at any of our 500+ UK branches.
3. Drive to your appointment. We’ll settle any outstanding finance and send the remaining cash to your bank!

Please note: If your car’s value is less than the outstanding balance, you’ll need to pay the difference to sell your car to us.

Voluntary termination and cancelling your car finance early

According to Section 99 of the Consumer Credit Act 1974, you can cancel your Personal Contract Purchase (PCP) or Hire Purchase (HP) agreement early.

Providing you have paid at least 50% of the total amount, you can return the vehicle to the lender and walk away, providing it is in good condition. You may incur additional charges if the damage falls outside the wear and tear guidelines.

If you haven’t yet paid 50%, you’ll have to make up the difference before you can cancel the loan.

It’s also important to note that if you have paid more than 50%, you can still voluntarily terminate the loan, but you won’t get a refund for the extra money.

Can I pay off my car finance early?

Yes, if your financial circumstances improve, you can pay off your car finance agreement early.

There are a few ways to do this:

• Make a lump sum payment, covering the balance of the loan.
• Increase your payments: By increasing the size of your payments, you can pay off the balance faster – and save on interest.
• Make more frequent payments: Increasing the frequency of your regular payments can also help you pay the balance faster and reduce the amount of interest.

Once you have paid off the balance of the loan, you’ll also be named as the legal owner of the car, as it will no longer be the property of the finance company.