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Car finance ›
Can you part exchange a car on finance?
Updated: Wednesday, 5 April 2023
When you’re buying a new car, taking out a car finance agreement can be helpful for paying it off over time. But sometimes your circumstances can change.
You may want to trade in your vehicle for a cheaper model or one that better suits your needs. Either way, you might have thought about part exchanging your current car to buy a new one.
But can you part exchange if your car is on finance?
Can you part exchange when you have a car on finance?
A part exchange is when you trade in your used or old car to purchase a new one. When you part exchange, a dealer will inspect your current car and offer a value that becomes a deposit for the new vehicle you want to purchase. The dealer will buy the car from you if you’re happy with the purchase price they offer you.
However, selling your car when you’re in a car finance agreement is likely to be a breach of your contract, as the car is not legally yours to sell. You are only the legal owner once you have fully repaid the finance, plus any other additional fees or charges depending on your finance type.
There are two ways you can part exchange a car on finance. You can either pay off the remaining balance and then use your car for part exchange or you can have the dealer pay the settlement figure as part of a new deal.
Settle your finance agreement to part exchange
With most car finance agreements, the lender is the vehicle’s legal owner until you have paid off the outstanding finance, and because you don’t own the car, you can’t change your car with outstanding finance. One way to part exchange a car on finance is to settle your finance agreement.
To do this, you’ll need to ask the lender for the early settlement figure. Once you’ve paid this in full, you will become the legal owner of the vehicle. You can then sell or part exchange your car as you’d like. This is true for Hire Purchase (HP), Personal Contract Purchase (PCP) and Conditional Sale (CS) finance agreements, although the exact terms for doing this will vary depending on your lender and the loan type.
Remember that with PCP finance, you will also need to pay off the balloon payment at the end to buy the vehicle. You can return the car instead of buying it and open a new car finance deal with the lender.
With Hire Purchase, an ‘option to purchase’ fee must be paid for you to fully own the vehicle.
Another option to settle your car finance agreement early is by voluntary termination. This is for when you want to end your current finance agreement, which means you’ll have to give your car back to the finance company. To do this, you’ll need to have paid at least 50% of the total amount payable or put forward a lump sum payment to reach this point.
By ending your finance agreement in this way, you won’t receive any money for a deposit on your next car. So be sure you’ve explored all your options before deciding on voluntary termination of your car finance agreement. If you’re unsure which is best, contact your lender and they will be able to discuss your options.
Have the dealer pay the early settlement figure
In some cases, a dealer may agree to pay the early settlement figure for your financed car when it’s in positive equity.
Positive equity is when the valuation of the vehicle is worth more than the early settlement figure. For example, if your current car is valued at £5,000 and you have £2,000 left on your finance contract, you’ll be in positive equity. When the current agreement is paid, you will have £3,000 as a deposit for your new car.
After the dealer has settled your outstanding finance, they will use the equity as a deposit for your next car. It’s important to remember that if you’re in negative equity, you’ll end up paying your dealer a lot more for the part exchange.
Negative equity is when your vehicle is worth less than the settlement agreement from your lender. For example, if your car is valued at £3,000 but you have £3,500 left on your agreement, you’ll be in negative equity and must pay £500. Unlike positive equity, this means you won’t have any money to use as a deposit.
In this case, it may be better to pay off your financed car or wait until the end of the agreement before part exchanging.
How to part exchange a car on finance
If you’re looking to part exchange your financed car, you’ll need to contact your lender. You can explain that you want to part exchange your car for a new one and ask for the early settlement figure to end your agreement.
If you’re going to part exchange with a dealer, remember to take proof of the early settlement figure with you. You’ll also need to take any car documentation you have, like the service history and V5C document.
Alternatives to part exchanging your car on finance
If you’re in a car finance agreement and find yourself in need of a different vehicle, part exchanging your car might not be your only option. There are also options for changing your car with outstanding finance, which your lender should happily talk through with you. These options vary depending on the lender and loan type, so if you find yourself wanting a different car mid-agreement, it’s best to get in touch with your lender and see what your options are.
When you’re buying a new car, taking out a car finance agreement can be helpful for paying it off over time. But sometimes your circumstances can change.
You may want to trade in your vehicle for a cheaper model or one that better suits your needs. Either way, you might have thought about part exchanging your current car to buy a new one.
But can you part exchange if your car is on finance?
Can you part exchange when you have a car on finance?
A part exchange is when you trade in your used or old car to purchase a new one. When you part exchange, a dealer will inspect your current car and offer a value that becomes a deposit for the new vehicle you want to purchase. The dealer will buy the car from you if you’re happy with the purchase price they offer you.
However, selling your car when you’re in a car finance agreement is likely to be a breach of your contract, as the car is not legally yours to sell. You are only the legal owner once you have fully repaid the finance, plus any other additional fees or charges depending on your finance type.
There are two ways you can part exchange a car on finance. You can either pay off the remaining balance and then use your car for part exchange or you can have the dealer pay the settlement figure as part of a new deal.
Settle your finance agreement to part exchange
With most car finance agreements, the lender is the vehicle’s legal owner until you have paid off the outstanding finance, and because you don’t own the car, you can’t change your car with outstanding finance. One way to part exchange a car on finance is to settle your finance agreement.
To do this, you’ll need to ask the lender for the early settlement figure. Once you’ve paid this in full, you will become the legal owner of the vehicle. You can then sell or part exchange your car as you’d like. This is true for Hire Purchase (HP), Personal Contract Purchase (PCP) and Conditional Sale (CS) finance agreements, although the exact terms for doing this will vary depending on your lender and the loan type.
Remember that with PCP finance, you will also need to pay off the balloon payment at the end to buy the vehicle. You can return the car instead of buying it and open a new car finance deal with the lender.
With Hire Purchase, an ‘option to purchase’ fee must be paid for you to fully own the vehicle.
Another option to settle your car finance agreement early is by voluntary termination. This is for when you want to end your current finance agreement, which means you’ll have to give your car back to the finance company. To do this, you’ll need to have paid at least 50% of the total amount payable or put forward a lump sum payment to reach this point.
By ending your finance agreement in this way, you won’t receive any money for a deposit on your next car. So be sure you’ve explored all your options before deciding on voluntary termination of your car finance agreement. If you’re unsure which is best, contact your lender and they will be able to discuss your options.
Have the dealer pay the early settlement figure
In some cases, a dealer may agree to pay the early settlement figure for your financed car when it’s in positive equity.
Positive equity is when the valuation of the vehicle is worth more than the early settlement figure. For example, if your current car is valued at £5,000 and you have £2,000 left on your finance contract, you’ll be in positive equity. When the current agreement is paid, you will have £3,000 as a deposit for your new car.
After the dealer has settled your outstanding finance, they will use the equity as a deposit for your next car. It’s important to remember that if you’re in negative equity, you’ll end up paying your dealer a lot more for the part exchange.
Negative equity is when your vehicle is worth less than the settlement agreement from your lender. For example, if your car is valued at £3,000 but you have £3,500 left on your agreement, you’ll be in negative equity and must pay £500. Unlike positive equity, this means you won’t have any money to use as a deposit.
In this case, it may be better to pay off your financed car or wait until the end of the agreement before part exchanging.
How to part exchange a car on finance
If you’re looking to part exchange your financed car, you’ll need to contact your lender. You can explain that you want to part exchange your car for a new one and ask for the early settlement figure to end your agreement.
If you’re going to part exchange with a dealer, remember to take proof of the early settlement figure with you. You’ll also need to take any car documentation you have, like the service history and V5C document.
Alternatives to part exchanging your car on finance
If you’re in a car finance agreement and find yourself in need of a different vehicle, part exchanging your car might not be your only option. There are also options for changing your car with outstanding finance, which your lender should happily talk through with you. These options vary depending on the lender and loan type, so if you find yourself wanting a different car mid-agreement, it’s best to get in touch with your lender and see what your options are.
For a better road ahead
Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.
Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.
Moneybarn’s VAT registration number is 180 5559 52.
Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)
Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)
