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. We consider applications from people with poor credit. Check your eligibility on our apply for car finance page with a soft search that will not affect your credit file.
On a Hire Purchase agreement with AutoMoney Trust, legal ownership of the car does not transfer until you have made all monthly payments and paid the £199 Option to Purchase Fee at the end of the term. Until that point, the vehicle remains the property of AutoMoney Trust, which means you cannot legally sell or modify the car without our agreement, and the car may be at risk if payments are missed. You are still responsible for tax, insurance, MOT, and maintenance throughout the agreement. Once the final fee is paid, ownership transfers and the car is fully yours.
All cars depreciate over time, with most used vehicles losing value steadily across a finance agreement. This matters because by the end of your term, the total amount paid, including interest, may be more than the car's market value. Depreciation also affects negative equity risk: if you want to sell or settle early, the car's value may not cover the outstanding finance balance. Mileage, condition, service history, and demand all influence how quickly a car depreciates. GAP insurance can help cover the gap between a write-off payout and your outstanding finance.
Yes, under section 99 of the Consumer Credit Act 1974, you have a legal right to voluntarily terminate your hire purchase agreement once you have paid at least 50% of the total amount payable. If you have paid less, you can still apply, but you would need to cover the difference. You must return the vehicle in reasonable condition and clear any arrears. Voluntary termination may still appear on your credit file. If you are unsure whether it is right for you, speak to our team before proceeding, as other options may be available.
Your loan term directly affects both your monthly payments and the total cost of borrowing. A longer term, such as 60 or 84 months, spreads the cost over more payments, lowering the monthly amount but increasing the total interest you pay across the agreement. A shorter term, such as 24 or 36 months, means higher monthly payments but a lower overall cost. AutoMoney Trust offers terms from 24 to 84 months, so you can balance monthly affordability against total cost. Use our finance calculator to compare different term lengths before applying.
