Part exchanging a car is a great way to get an upgrade or switch to a new or used car. However, if you are currently in the middle of a car finance agreement you may be wondering if it’s possible or you could be unsure of the process.

In this guide, we’ll be taking a look at how part exchanging a financed car works, the things you should consider before going ahead and the alternative options you have.

Before we dive in, we’ll first take a look at what part-exchanging a car means. If you know which section you’d like to learn more about use our handy links below.

 

How to part exchange a car on finance

Part exchanging a car can be a relatively simple process, providing you are not in negative equity and depending on the type of car finance agreement you have. In most cases, the dealership you are dealing with will be able to guide you through the process.

Whatever situation you find yourself in, there are some general steps you should expect to take when part exchanging a car on finance.

Check your current finance agreement and get a settlement figure

The first step to part-exchanging a car on finance is to check your current finance agreement and the outstanding value you still owe. You should then ask the lender to provide you with a settlement figure. This is the amount that you still owe before you legally own the car.

Request a valuation of your car

Once you have your settlement figure and the car and documents prepared, you next need to get your car valued and find out how much the dealership is willing to offer you for it.

The price that they give you will take into account the car’s age and mileage as well as the overall condition. It is possible to haggle if they offer you something lower than expected but remember they are usually experienced and in the best position to offer you an accurate valuation.

That being said, you are not under obligation to accept their offer. It’s important to take your time and shop around to find the best deal for you.

Trade in your car and let the dealership handle the rest

If you are happy with the amount offered by the dealer, you would then transfer legal ownership of the car to them and provide them with the details of your current lender and all the relevant documents they need. They will then be able to work with the lender to settle any remaining finance on your car.

What is part-exchange on a car?

Put simply, part-exchanging (also known as part-ex) means trading in your current car for money which can be used towards the deposit or purchase of another car.

If you own your car outright and know the value of your car, part-exchanging is a relatively simple and convenient process. In some circumstances, there are some downsides and being in the middle of a car finance agreement can make it a little less straightforward.

Can I part exchange my car with outstanding finance?

Yes, it is possible to part-exchange a car with outstanding finance. However, this will depend on what kind of car finance agreement you have.

For Personal Contract Purchase (PCP) car finance and Hire Purchase (HP) finance, you are typically allowed to trade in a car once a minimum number of payments have been made. If you have a lease agreement, you cannot part exchange the car as you do not legally own it.

Another factor you should consider is if you are in negative equity as this can make part-exchanging financially unfeasible. On the other hand, if you are in positive equity, you may be able to get a good deal. We’ll take a closer look at what this means below.

Part exchanging a car with negative equity

Being in negative equity means that you currently owe more on the car than it’s worth. Falling into negative equity can occur for various reasons, such as the car’s value depreciating faster than the agreed finance amount is being paid off. This is common with longer loan terms as the longer repayment period gives the car more time to depreciate.

If you find yourself in negative equity and you’re looking to part exchange a car on finance, this means you do not have any excess money to put towards another car.

To put this into context, imagine that your car is currently valued at £5,000 but you still owe £6,000 of the finance agreement, then you will have £1,000 of negative equity. You would then need to pay this amount when you trade in your car to settle the agreement.

Some car dealerships may allow you to combine the cost of clearing your negative equity with the monthly payments for your new car. This will likely increase the overall cost of your new finance agreement and put you at risk of slipping further into negative equity. You should consider your options carefully if you are in this position.

Part exchanging a car with positive equity

Unlike being in negative equity, positive equity means that your car is worth more than what you still owe on the car finance agreement.

For example, if your current car is valued at £5,000 but you have £3,000 left to pay, then you have £2,000 positive equity. This money can be used as a deposit which can help to reduce the amount of finance you take out with the lender.

Advice for part-exchanging a car on finance

Much like when it comes to selling a car, there are certain things you can do to make sure you get the best deal when part-exchanging a car on finance.

Clean the car and repair faults

To ensure you get the best price possible, you should give your car a thorough clean. If your car shows signs of damage or has ongoing faults, the dealership may use this against you when haggling on the price. Depending on the cost, it may be worth considering getting any repairs done before getting the car valued or trading it in.

Prepare all the relevant documents

As well as ensuring the car looks clean and runs well, you should also prepare all the relevant documents such as the V5C logbook, the car’s service history, MOT certificates and financial settlement letter.

Shop around and be prepared to negotiate

Before settling with a part-exchange offer from a dealer, remember that there is normally room for negotiation and you are not obliged to take the first offer you receive.

While the amount they offer you will be largely reliant on the settlement figure and condition of the car, most dealerships are accustomed to haggling before settling on a price.

Researching the car’s market value and taking the time to prepare the car and documents for exchange can stand you in good stead for negotiations.

Alternatives to part-exchanging a car with outstanding finance

Pay off the remaining car finance early

If you are close towards the end of the finance term and you can afford it, you could consider paying off the remaining car finance early. This would enable you to sell the car privately, giving you a bit more control over the resale value and process. Selling a car privately could also fetch you a higher selling price which could go towards the deposit for a new or used car.

If paying your car finance off early is not feasible, it might be possible to sell a car on finance depending on the type of car finance you have.

Return the car under a voluntary termination

If you have either a PCP or HP finance agreement, you can return the car to the lender through what is known as a voluntary termination. Before proceeding with a voluntary termination, you should always make contact with your lender before making any decisions to ensure you fully understand what is involved and the consequences of returning a car this way.

With a voluntary termination, you will need to have paid at least 50% of the total amount payable and you may have to pay extra or additional interest, but you may save money by not having to repay the remaining 50%.

A voluntary termination won’t usually affect your credit score but it will appear on your credit report so you should avoid voluntarily terminating finance agreements repeatedly.

Continue with your current car finance agreement

After assessing your current situation and all the options available to you, you may have decided that part exchanging isn’t right for you. The offer you receive for part exchanging your car depends on many factors and you may be in a better position to part exchange a few months down the line, particularly if you are in negative equity.

Should I part exchange a car on finance?

Ultimately, deciding whether you should part-exchange a car on finance is down to you and your individual needs. Part-exchanging can be convenient, however, you may not make as much money from it as if you were to sell it privately. Before entering any part-exchange agreement, you should always make sure you fully understand the terms and position of your current finance agreement.

Part exchanging a car on finance FAQs

Can I part exchange if I’m in negative equity?

Yes, it is possible to part exchange a car on finance if you are in negative equity, however, it will depend on the amount and it may come with some financial implications.

How do I find out my car’s trade-in value?

There are several ways you can find out the trade-in value of your car. To get the most accurate trade-in value, you can take your car to a dealership and ask for a trade-in appraisal.

To get wider estimates of your car’s trade-in value you can use online car valuation tools and conduct your own research using private car listings and comparing your car with recent sales that match the make and model. This can help you gauge what buyers are paying but you must also consider the current condition of your car.

What happens if the dealer’s offer doesn’t cover my outstanding finance?

Unfortunately, if the amount offered by a dealer doesn’t cover your outstanding finances, you will have to look at covering this cost yourself.

Can I part exchange a leased car?

No, you cannot part-exchange a leased car because you are not the legal owner. However, some dealerships may buy your leased car if the finance company allows it.

Can you sell a car on finance and then pay it off?

This depends on how you have financed the car. If you have purchased a car with a personal loan, then you could sell the car and use the proceeds of the sale to repay the outstanding payments. If you have an outstanding PCP or HP finance agreement, you will need to settle the outstanding finance before selling it.

Will a car dealer settle my finance?

Yes, some car dealers will help you to settle your outstanding car finance. You will still need to make the lender aware and also obtain the settlement figure. If you choose to trade in your current car for a new one, you can use the difference between the settlement figure and the cost of the new car as a deposit.

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Steve Edwards
A certified car nerd who has been creating car content since 2015, Steve is much happier talking about used cars under £15,000 than the latest hypercar. He’s been advising friends and family on their next used car purchase for as long as he can remember – handy experience for his current role in charge of content at MOTORS. As a father of two young kids who covers a lot of miles, he tends to value safety, practicality and comfort above all else, so he has a soft spot for massive SUVs and premium estate cars.
Article published September 19th, 2024