Can you part exchange a car on finance?

Last updated January 28, 2022

If you have a car with outstanding finance that you want to trade-in, you may be able to upgrade or swap it for another vehicle at some dealerships. Whilst it can be convenient to simply swap your car for another, there are other options available such as selling your car through, cancelling your finance agreement early or paying off your finance agreement early if you have the funds.

In this guide we have explained how to part exchange a car on finance, things to consider and your other options.

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What does part exchanging a car mean?

Part-exchanging your car on finance is simply trading in your current car for a new one. If you are in positive equity, you can put that towards the new car that you want to purchase. However, if you are in negative equity, you may have the amount you owe added onto your new finance agreement.

Part-exchanging tends to be a popular option for many because it allows you to purchase a new car and sell your car in the same transaction. The dealer will handle all of the paperwork and you won’t have to go through the hassle of a private sale.

When you part exchange, you can generally drive to the dealership in your current car and drive away in your new car, with the salesman working out the finances based on how much equity you have in your old car compared to how much you are purchasing the new car for. It is recommended that you keep the two deals separate so you can ensure you’re getting a good price for your car and a fair deal for the new car as things could get more complex when treating it as one transaction, especially when there is finance involved.

Should I part exchange my car if it has outstanding finance?

If you have outstanding finance on your car, you will firstly need to find out how much your car is worth and how much you owe the finance provider. To find out the outstanding balance, you will need to contact the finance company and ask for a settlement figure.

In the scenario where your car is valued at more than the settlement figure, this means that you’re in positive equity and can use that equity towards your new car. For example, if you still owe £8,000 on your car but the car is worth £10,500, it means that you have £2,500 in equity that can be put towards your new purchase, either as a deposit or to buy the car outright if it’s worth less than that figure.

If you agree to part-exchange your car, the dealer should pay off the settlement figure and put any of the leftover money towards your new car. If you’re buying another car on finance, this will likely be used as the deposit. Once this has been sorted, you will need to hand over all of the relevant documents including the V5C (logbook), manual, keys, service history documents and MOT certificates.

Part exchanging your car isn’t the only option if you have a car on finance. It is possible to sell your car directly to some dealerships and get the difference between the settlement figure and the price paid for the car in your bank. You can also sell to ourselves to avoid the hassle of a private sale or having to visit a dealership, simply get a valuation in less than 30 seconds to find out the value of your car and we will settle any outstanding finance.

What happens if my car is in negative equity?

Firstly, lets explain what we mean by negative equity. This term means that the amount you owe for your car exceeds the amount the car is worth. If you sell a car that’s got 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, some dealerships may offer to add the negative equity onto your new car finance, however, this will result in you being further in negative equity and should be approached cautiously to avoid larger debts.

Whilst it can seem an attractive option to add the debt from your previous finance deal to your new purchase, it will mean that you’re not only paying the interest payments on your new vehicle, but also the amount added on from the previous negative equity. It is important to understand how much this will cost over the course of the finance term and where possible it is best to avoid carrying over negative equity.

You can see an example of how negative equity can impact the cost of borrowing here:

Car purchase price Negative equity APR Finance term Cost of interest Total cost
£10,000 £0 8.9% 48 months £1,843.96 £11,843.96
£10,000 £1,500 8.9% 48 months £2,120.55 £13,620.55

Tips for part-exchanging a car on finance

If you have decided that part exchange is the right option for you, there are a few things you can do to ensure you get the best deal:

  • When negotiating with the dealer, you should have a value in mind for what you want to receive for your car as that will put you in a better position to negotiate.
  • You should know the market value of the car you are purchasing, and you should check what is available elsewhere before visiting the dealership so you know if you’re getting a fair deal.
  • Ensure your car is in the best condition possible when taking it into the dealer for part-exchange as the dealer may think you’re trying to hide defects if you fail to clean the car. It may also make the car look like it has been looked after better, which could increase your chance of getting a higher offer.

Sell your car to webuyanycar

If you would rather sell your car and have the money in your bank account rather than part exchange, the simplest way is to sell to ourselves. If you have purchased your car on finance and you have the option to purchase your car at the end of your agreement, we will be able to buy your car and settle any finance. As the car still has outstanding finance, you will need to bring an up-to-date settlement letter from your finance company which includes the settlement amount and your agreement reference number.

Where our valuation is higher than the settlement amount, we will pay the difference directly into you bank account. However, if our valuation is lower than the amount you owe, you will need to pay the shortfall via debit or credit card at your appointment.