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How does part-exchange work with car finance?

If you want a new car but don’t want the hassle of selling your current car privately, a part-exchange could be a favourable option. But what does part-exchanging mean and can you part-exchange a car on finance? This Zuto guide explains all you need to know.

What is part-exchange on a car?

Part-exchange is when you trade in your current car and put the proceeds towards the purchase of a new one. It’s generally more convenient than selling an existing vehicle privately.

How to part-exchange a car on finance

So, how does part-exchange work, car finance-wise? There are two steps involved: trading it in and using the settlement amount as a deposit.

1. Trade in your current car

If you have outstanding finance on the car you want to part-exchange, you’ll need to settle that before you can trade it in. Remember, when you buy a car using Zuto PCP finance or hire purchase finance, you don’t actually own the car until the final payment has been made.

If you want to pay off your finance early, you’ll need to get a settlement figure from your lender. This is the amount the lender is willing to accept in order to end your current agreement. If you have PCP finance, this settlement figure will include a final balloon payment. Some lenders might also charge an additional early termination fee.

2. Use your trade-in as a car deposit

Once you’ve paid the settlement amount, any money left over from the sale can be used as a deposit on your new car. If you need to take out car finance to pay the remaining balance on the new car, the size of the deposit you put down will affect the amount you need to repay - the bigger the deposit you put down, the less you’ll need to borrow, which means your monthly repayments are likely to be less.

Although part-exchange is often seen as a more convenient way of selling a car, it’s worth noting that the dealer is likely to offer you less than the market value. This is to cover any costs in preparing the vehicle for re-sale, which can include things like an MOT, valet and any repairs that may be needed.

When you make a finance application with Zuto, our team will be able to give you a valuation for your part-exchange, so you can make an informed decision and remove the hassle of dealer negotiations.

Zuto is a credit broker, not a lender. Representative 20.9% APR.

Can you trade a PCP car in early?

When you buy a car using PCP finance, you’re actually borrowing against the depreciation value of the vehicle and not the purchase price. So, can you part-exchange a car on PCP?

If you want to trade the car in, its current value might be enough to cover the settlement figure on your existing finance agreement. If not, you'll need to pay the difference. You might be able to add this outstanding amount to the finance on your next car. This is known as negative equity car finance

Timing is crucial when settling a PCP arrangement, as cars generally lose the most value in their first three years of registration. PCP finance is set up to reflect this, which means you should break even by the end of the agreement. But if you settle early, you’ll need to pay the remaining balance.

Are there dealers in my area that will part-exchange my car?

We work with reputable part-exchange dealers across the UK, so are happy to work with one close to where you live, subject to them meeting our company checks. We can also help you purchase a vehicle through a private sale.

Additionally, we have over 15 years’ experience in helping customers apply for car finance with bad credit; it always helps to work out exactly how much you can afford to borrow before applying, so use our car finance calculator to give you an estimation.

Tips for part-exchanging a car on finance

To give you a helping hand when it comes to part-exchanging a car on finance, we’ve outlined our top three tips for a swift and straightforward deal.

  1. Compare equivalent car sales

When you part-exchange your car, you’ll need to establish its current value. To do this, compare with equivalent sales of like-for-like vehicles (this is important, as different models could be worth much more or less).

  1. Make your car as attractive as possible

To receive the highest possible car trade-in value, it’s important to make your vehicle as attractive as possible. This could include addressing any scratches, replacing broken parts, or giving it a thorough clean; the less time your car will need to spend in a garage or repair shop, the more desirable it is to dealers.

  1. Compile all the appropriate paperwork

Before you part-exchange your car, prepare all the finance documents and relevant paperwork (MOT, service history, and log book). This speeds up the sale process, which is more attractive to dealers.

Alternatives to part-exchanging a car on finance

Choosing to part-exchange a car on finance can remove a lot of the hassle involved in getting a new vehicle, but it’s not the only option. We’ve outlined three alternatives to part-exchanging your car.

Hold off on part-exchanging for now

The deal you get on a part-exchange depends on a series of factors, including how much your car is currently worth. If you owe more on your finance than your car’s value, consider delaying part-exchanging until you’re in positive equity.

Return your car after the finance term

Instead of part-exchanging your car, you can choose to return the vehicle to the dealership at the end of your agreed finance term (or if you’ve paid off at least 50% of the finance). You may have to pay additional interest or fees, if returning your car, however.

Pay off your car finance early

Rather than part-exchanging a car on finance, you might want to pay off the outstanding loan amount early and sell the vehicle privately. This is sensible solution if your car is worth more than the required settlement figure, and you don’t mind putting in the time to sell to a dealer directly. Any extra money from the sale can then be put towards a deposit for a new car.

If you’re still unsure whether to trade in your car on finance or look for a new agreement, get in touch with our team to discuss your available options.

Written by

Ryan Borrowdale

Content Manager

Ryan has worked at Zuto for a number of years and uses his experience within the industry to help customers understand the ins and outs of car finance.

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