How to part-exchange a car on finance
Part-exchanging a car that still has finance on it works differently to trading in a car you own outright. The dealer needs to settle your existing finance as part of the deal, and whether you end up with money toward your next car or a shortfall to cover depends on whether the car is worth more or less than what you still owe. This guide covers how the process works and what to expect.
Yes. Part-exchanging a financed car is one of the most common ways people move from one vehicle to the next, and dealers are set up to handle it as a normal part of the sales process. The key difference compared to part-exchanging a car you own outright is that the dealer first needs to settle your outstanding finance balance before the trade-in value can be applied to your next purchase.
The dealer will ask for details of your current finance agreement, including the lender and the agreement reference. They will then contact your lender to obtain a settlement figure, which is the exact amount needed to clear the finance on a given date.
The process generally follows these steps:
You can request a settlement figure from your lender at any time, even before you start looking at a new car, so you know where you stand. For more on settlement figures and the wider process of selling a financed car, see our guide: selling a financed car.
Negative equity means your car is worth less as a part-exchange than the amount still owed on the finance. For example, if the dealer values your car at £6,000 but your settlement figure is £8,000, you have £2,000 of negative equity.
This does not stop you from part-exchanging, but the £2,000 has to go somewhere. The most common approach is to add it to the new finance agreement, meaning you borrow £2,000 more than the price of your new car to cover the shortfall from the old one. This is sometimes called rolling over negative equity.
Rolling over negative equity is worth thinking through carefully. It increases the amount you are borrowing on the new agreement, which means higher monthly payments or a longer term. It can also mean starting the new agreement already in negative equity if the new car depreciates in the same way. None of this makes part-exchange a bad option, but it is worth understanding the numbers before agreeing to a deal.
Use our car finance calculator to see how adding a negative equity amount to a new loan affects the monthly payment before you commit.
Positive equity is the more straightforward situation. If your car is worth more as a part-exchange than your settlement figure, the difference reduces the amount you need to borrow for your next car. For example, if your part-exchange value is £9,000 and your settlement figure is £7,000, you have £2,000 of positive equity to put toward your next vehicle.
This works similarly to a deposit, reducing the loan amount on your new agreement and therefore the monthly payments or the total amount of interest paid over the term.
Part-exchange values are typically lower than what you could get selling the car privately, because the dealer needs to factor in their margin, any reconditioning costs, and the risk of holding the car in stock until it sells. The trade-off is convenience: part exchange settles your old finance, applies any equity to your new purchase, and arranges your new finance, all in one transaction.
If maximising the value of your current car matters more than convenience, selling privately and using the proceeds to settle the finance yourself before buying your next car separately may get you more money. Our guide on selling a financed car covers the private sale process and what is involved.
Before visiting a dealer or starting the process, have the following ready:
Having a settlement figure in hand before you start negotiating gives you a clearer picture of where you stand and means the dealer cannot surprise you with a larger settlement amount than expected partway through the process.
Once your old finance is settled and any equity or negative equity has been factored in, your new car is financed as a fresh agreement. This is a good point to consider what type of finance suits you best for the new vehicle. Hire purchase means you pay off the full value of the car over the term and own it outright at the end, with no large final payment. For a comparison of HP against other options, see our guide: hire purchase vs personal loans.
AutoMoney Trust offers hire purchase from £4,000 to £25,000 over 36 to 84 months with no deposit required. Having a poor credit history doesn't automatically mean you can't get car finance. Use our online eligibility checker to complete a soft search without affecting your credit score.
With an AutoMoney Trust hire purchase agreement, legal ownership of the car transfers to you only after you have made all of your monthly payments and paid the £10 option to purchase fee at the end of the agreement. Until then, the vehicle remains the property of AutoMoney Trust.
Although you won't legally own the car during the finance term, you are responsible for its day-to-day running costs, including vehicle tax, insurance, MOT, servicing, and maintenance. As the finance provider owns the vehicle until the agreement is complete, you cannot normally sell, transfer ownership of, or make significant modifications to the car without our permission.
It is also important to keep up with your car finance payments, as missed payments could lead to arrears and, in some circumstances, the vehicle may be at risk of repossession if the agreement is not brought back up to date.
Once you have made your final monthly payment and paid the option to purchase fee, legal ownership transfers to you, and the car becomes fully yours with no further finance obligations.
Yes, your car is likely to lose value during the finance agreement. Most cars depreciate over time, meaning they gradually lose value as they age. For most used cars, depreciation continues throughout a Hire Purchase agreement, so the vehicle is typically worth less at the end of the finance term than when it was purchased.
Depreciation is important because the total amount payable on a car finance agreement includes the amount borrowed, interest, and any applicable fees. As a result, the total amount you repay over the agreement may be higher than the vehicle's market value by the time your finance ends.
Depreciation can also increase the risk of negative equity. If you decide to settle your car finance early or sell the vehicle before your agreement has ended, the car's current market value may be lower than the outstanding finance balance. In this situation, you may need to pay the difference before the agreement can be settled.
The rate at which a car depreciates depends on several factors, including its age, mileage, condition, service history, brand, model, and market demand. Keeping your vehicle well maintained and within reasonable mileage can help preserve its value over time, although depreciation cannot be avoided completely.
Some drivers also choose to take out GAP insurance, which may help cover the difference between an insurer's payout if the vehicle is written off and the remaining balance on the car finance agreement. This can provide additional financial protection particularly during the earlier years of a hire purchase agreement, when the outstanding finance may be higher than the vehicle's market value.
Yes, you may be eligible for voluntary termination (VT) of car finance if you've paid at least 50% of the total amount payable under your hire purchase agreement. Under section 99 of the Consumer Credit Act 1974, customers have a legal right to voluntarily terminate your hire purchase agreement, provided the required conditions are met.
Car finance voluntary termination allows you to return the vehicle and end your hire purchase agreement without making the remaining monthly payments. If you've paid less than 50% of the total amount payable, you may still be able to request voluntary termination, but you'll need to pay the difference before the agreement can be ended.
The vehicle must also be returned in reasonable condition, and any outstanding arrears or missed payments will need to be cleared before the agreement can be concluded.
Choosing voluntary termination on a hire purchase agreement may be recorded on your credit file and could be considered by future lenders when assessing applications. Before deciding whether this is the right option for your circumstances, we recommend speaking to AutoMoney Trust. Our team can explain the process, discuss any alternatives and help you understand the potential impact on your finance agreement.
The length of your car finance agreement can have a significant impact on both your monthly payments and the total cost of borrowing. Choosing a longer finance term, such as 60 or 84 months, spreads the cost of the vehicle over a greater number of payments. This can make your monthly payments more affordable, but it may mean you pay more interest overall throughout the agreement.
A shorter car finance term, such as 36 months, usually results in higher monthly payments because the balance is repaid over a shorter period. However, paying the agreement off sooner can reduce the overall amount of interest paid, making it a potentially lower-cost option over the full term.
When choosing the right finance term, it is important to consider your budget, monthly affordability, and how long you plan to keep the vehicle. The best option is one that allows you to comfortably manage your payments without putting unnecessary pressure on your finances.
AutoMoney Trust offers car finance terms from 36 to 84 months, giving you flexibility to choose an agreement that suits your circumstances. Use our car finance calculator to compare different term lengths and understand how your monthly payments and overall costs could change before applying.
