How does part exchanging a car on finance work?

Many drivers choose to finance their car to help spread the cost, but what happens if you want to part exchange it further down the line? 

In this article dedicated to the topic, we explain how part exchanging a car on finance works, how soon you can part exchange a car once it is financed, and if you can downgrade your car on finance. Read on to find out more… 

What is part exchange on a car?

To part exchange a car means you are trading it in for another vehicle, so the value of the car you are selling is taken off the price of the next one. It’s a popular option provided by new and used car dealerships, and the process can certainly make the cost of your next vehicle much more affordable.  

Can you part exchange a financed car?

Yes, it is possible to still part exchange a car if it has outstanding finance. Not all dealerships offer this service though, so it’s best to check first. If this is offered by the dealership you’d like to part exchange your car with, then you’ll firstly need to contact the lender for permission to do so.

Remember, that as the borrower, it is the finance company that owns the car, not yourself. Once the lender has approved your car for part exchange, you will then need to settle the outstanding finance owed on the vehicle. This means you will become the registered owner and can benefit from the full value of the car against the part exchange cost of a new one. 

Some dealerships may even offer to pay the outstanding finance on your behalf - this amount will then be factored into the overall cost of your part exchange. We explain how part exchange car finance works in more detail, below…   

How does part exchange car finance work?

If you’re considering part exchanging your financed car for another make or model and want to know how to go about doing so, then we’ve got your covered. Check out the step-by-step process for an altogether smoother sale:

Contact your finance provider

As we’ve highlighted above, the first thing you need to do is inform the finance company of your plans to part exchange the car. Once this has been approved, your lender will confirm the remaining balance left to pay (if there is any) and arrangements will be put in place to settle up.

Get a vehicle valuation

Once your lender has confirmed the settlement figure owed, you can find out how much the car is currently worth. Many dealerships will provide access to a free online valuation calculator on their website, but of course you will be able to discuss the value of your vehicle by visiting the dealer in person. 

Ask about outstanding finance

If there is outstanding finance owed on the car, then ask a member of staff at the dealership if this can be settled by them on your behalf. A car dealer may be more than willing to pay off your finance to help get your part exchange deal across the line. 

Sign on the dotted line

Once you are happy with the valuation of your current vehicle, have put arrangements in place to fulfil any outstanding finance and have chosen your next car, then all that’s left to do is sign the contract to get the wheels in motion!

Can you part exchange a car on a Personal Contract Purchase deal?

Yes, you can part exchange your car if you are tied into a Personal Contract Purchase (PCP) contract. Make sure you check the small print in your agreement to confirm the terms. When ending a PCP agreement, you’ll need to make a final balloon payment and you may also be expected to pay an early termination fee too. Find out what it means to make a large final payment by reading our car balloon payment guide.   

Your car should be worth more than the amount owed, so the value of the vehicle will be used against the cost of your next car. 

Can you part exchange a car on a Hire Purchase deal?

Part exchanging your car when committed to a Hire Purchase (HP) deal works in much the same way as with PCP contracts. Just make sure there is equity in the vehicle before you go ahead, as negative equity will mean you owe more money than the car is currently worth.        

When can you part exchange a car on finance?

How soon you can part exchange a financed car will be laid out in the terms of your contract with the lender. Under a PCP and HP agreement, you are usually tied into a minimum amount of payments before the car can be part exchanged - assuming you can afford to pay off the final balloon fee too. 

Typically, car finance agreements last between three to four years, so if you just can’t wait to get your hands on the latest model, it is likely you can part exchange your car after just six months - or at least 50% of the car’s value - always check with your lender first.    

Can you part exchange your car for a cheaper one?

If you want to downgrade your car, it is possible to part exchange your current car for one that’s worth less. It may be that you want to save on your motoring costs and wish to drive a car that is cheaper and more economical than your current set of wheels. 

Speak to both your lender and the dealership you wish to purchase your next car from to see what your options are. If there’s money to be made from your current car, the dealer is likely to offer you a deal, and may even pay off your outstanding finance too!    

Is part exchanging a car on finance a good idea?

This question all depends on your personal circumstances - ultimately, you need to make sure you benefit from part exchanging your current car so that it is worth your while. To help you decide, we’ve listed the advantages and disadvantages to part exchanging your car:

Peace of mind car finance for your part exchange

When it comes to part exchanging a car, you may wish to finance your next vehicle to help spread the cost of a new set of wheels. Here at Octane Finance, we can broker a finance deal to suit your needs. 

No matter what make and model of car you desire, we can make that dream become a reality. We work with lenders all over the UK to secure the best finance deal possible - and it can be as specialist as you like, as we offer prestige and supercar, classic car, and race car solutions too. Get in touch to find out how we can fuel your car finance today!