We understand that there can be many elements to the car finance process that are confusing. This blog post focuses on understanding how part exchange works with car finance and what you need to know if you are looking to take out a new finance agreement and want to part exchange your current vehicle.
What does part exchange mean?
A part-exchange is when you trade in your current car and put the proceeds towards the purchase of your new vehicle.
It provides a fast and suitable option to a private sale, and by selling your old car quickly, you could be driving your new car away sooner.
There are various tools on the web that you can use to get a rough estimate of your cars value. But once you are ready to find that new car the dealership will inspect your car to see what condition it is in and give you an accurate valuation.
Advantages of part exchange
- Part-exchange is the easiest option as you all you need to do is drop it off at the dealership and then you drive home your new car the same day
- Choosing to sell your car privately, and you could end up waiting weeks or longer to find a buyer. Not to mention the time and effort wasted on viewings that lead nowhere and also all the haggling people may want to do.
- Selling a car privately can also be more expensive than you think once you factor in the cost of advertising the car and having to wait around for people to turn up to view it.
Disadvantages of part exchange
- You may not get the best price with part exchange. Usually, you can get a higher price when selling your car privately, so part exchange may mean you lose out on some £££
- The dealer won’t be willing to go above the basic trade in value so may mean little room for negotiations
Selling a car with outstanding finance
You can sell your car with finance outstanding but there are a couple of things you should do to ensure you will be able to do so.
The first thing to do is informing the finance company and ask them for the settlement figure that they’ll need from you to pay off your loan in full. You can then provide this settlement figure to the dealership you are looking to get your new car from.
The dealership will then provide you with a value for your current car. If the amount you owe is larger than the cars value this is known as negativity equity. You will be required to cover the negative equity before you can get a new car.
What is negative equity?
Negative equity is when the car is worth less than the outstanding amount owed – also known as an “upside down” loan. For instance, if your car is worth £6,000 but your settlement figure is £8,000, you have £2,000 negative equity.
Can I part exchange with negative equity?
As a responsible lender we will not add any negative equity into a new agreement.
One way of getting out of negative equity is to pay off your loan outright. Negative equity only exists when you still have a balance to pay on the finance. As soon as you clear the balance you fully own the vehicle and there is no negative equity.
If you have some spare cash each month or maybe receive a bonus in your wages, it may be worth using this to make over payments on your car finance. This will mean you will reduce the loan term so you’ll pay it back faster.
If you do not have the funds to clear the remainder of the loan, another way to get out of negative equity is to continue to make your payments on your finance agreement as the more you pay off the smaller the loan gets.
For more information and helpful advice on car finance and other related subject visit our blog Pitstop.