Can I part-exchange my PCP car at another dealership?
Personal contract purchase (PCP) finance is built around the idea that many drivers will change cars every few years. A PCP agreement usually runs for three or four years, but your circumstances could change long before the contract ends.
The car may have become too expensive, too small, too thirsty, or simply no longer right for the way you use it. If you want to change cars, part-exchanging your current PCP car is usually possible during the agreement or at the end of it. You don’t have to go back to the dealer that originally supplied the car, and your next car does not have to come from the same brand.
The important point is that the finance agreement is with the finance company, not the original dealership. Any dealer taking your car in part-exchange will need an up-to-date settlement figure, and the outstanding finance has to be cleared before the car can be sold on. If the car is worth more than the settlement figure, the difference can usually go towards your next car. If it is worth less, the shortfall has to be dealt with before you can move on.
How does a PCP agreement work?
When you buy a car using PCP finance, whether it’s new or used, the dealer supplies the car and usually arranges the finance on your behalf. Once the agreement is set up, however, your finance contract is with the finance company rather than the dealership.
In simple terms, the finance company pays the dealer for the car, and you then repay the finance company over the agreed term. PCP agreements usually run for three or four years, with a large final payment (usually called a balloon payment) at the end if you want to keep the car.
The dealer may have arranged the finance and handed over the keys, but it’s not responsible for your finance agreement once the car has been delivered. From that point, your payments, settlement figure and end-of-agreement options are between you and the finance company.
This is why there’s no obligation to return to the same dealership when you want to change cars. Some people go back to the same dealership because it’s convenient. Others do because they wrongly assume they have to – and it’s entirely possible that the dealer may not have rushed to correct that misunderstanding.
You need to settle the finance agreement, but that can usually be done through any dealer taking your car in part-exchange.
How does part-exchanging a PCP car work?
If you part-exchange a car that is still on PCP finance, the dealer will value your car and compare that figure with the amount still owed to the finance company.
To do this properly, you need a current settlement figure. This is the amount required to clear the finance agreement at that point. It will include the final balloon payment if you’re at the end of the agreement, or a larger amount if you’re settling the finance early.
In most cases, the salesperson or finance manager will ask you to contact the finance company while you’re at the dealership, or they may help you request the figure. The finance company will provide the settlement amount and the date until which it is valid, usually in writing.
The dealer then uses that figure to work out whether your car is worth more or less than the amount outstanding. If the deal goes ahead, the dealer pays the settlement amount to the finance company and takes your current car in part-exchange.
The key point is that the finance needs to be cleared. Until that happens, the car still has outstanding finance attached to it, so the dealer cannot simply treat it like a normal used car with no finance outstanding.
What happens if my PCP car is worth more than the settlement figure?
If your car is worth more than the settlement figure, you have positive equity. This means the dealer’s part-exchange value is higher than the amount required to clear the finance.
For example, if the dealer values your car at £14K and the finance settlement is £12K, you have £2K of equity. The dealer would use £12K to settle the finance, and the remaining £2K can usually be put towards your next car.
This is one of the main reasons people part-exchange PCP cars. The vast majority of PCP customers will part-exchange rather than make the final payment themselves, because it allows them to use any equity in the current car as part of the next deal.
If you’re taking out another finance agreement, using the equity as a deposit can reduce the amount you need to borrow, which in turn will bring down the monthly payments on your next car.
What happens if my PCP car is worth less than the settlement figure?
If your car is worth less than the settlement figure, you’re in negative equity. This means the dealer’s part-exchange value is not enough to clear the finance.
For example, if the dealer values your car at £10K but the settlement figure is £12K, there is a £2K shortfall. That shortfall has to be dealt with before the finance can be cleared.
You may be able to pay the difference yourself. The dealer may also suggest adding the shortfall to the finance on your next car, but you need to be very careful with that. It can make the new agreement more expensive because you are effectively paying for part of your old car as well as your new one.
Rolling negative equity into another finance agreement can also make it harder to change cars again in future, because you start the next agreement already behind. It may be convenient, but it is rarely painless and it tends to create a larger problem next time around.
If the numbers don’t work, don’t let the dealer rush you into another finance agreement just to get out of the current car. Ask for the settlement figure, the part-exchange value and any shortfall to be shown clearly before you make a decision. Take your time to consider all the ramifications rather than making a decision on the spot.
Check the settlement date carefully
When your finance company provides a settlement figure, the letter or email will say how long the figure is valid for. This date is important.
Your settlement figure changes over time because your finance agreement is based on monthly payments. If the dealer doesn’t pay the settlement before the expiry date, the amount may no longer be correct and a new settlement figure may be needed.
You should also allow enough time for the dealer to process the payment to the finance company. Do not leave it until the final day if you can avoid it, especially if your next monthly payment or final payment is due around the same time.
Until the finance company confirms that the agreement has been settled, keep an eye on your direct debit. Don’t simply cancel it because the dealer has promised to pay the finance. If the dealer is late paying the settlement, or if the amount changes, you don’t want to end up with a missed payment on your finance agreement.
If a payment is taken after the dealer has settled the finance, the finance company should normally be able to sort that out. A missed payment, however, can create a bigger problem, so it’s better to keep everything live until the finance company confirms the agreement is closed.
Is part-exchanging better than handing the car back?
Part-exchanging can be the easiest option if you are buying another car. One dealer can value your current car, settle the existing finance, take the old car away and arrange the next car and finance agreement.
It can also be a better option if your car is worth more than the settlement figure, because you may have equity to use towards the next car. If the car has done more miles than expected or has damage, part-exchanging may also avoid some of the charges that could apply if you simply handed the car back at the end of the agreement.
However, part-exchanging is not automatically the best option. If your car is worth less than the settlement figure, you need to think carefully before changing. Paying extra money to get out of one car and into another may solve an immediate problem, but it can also make your next finance agreement more expensive.
If you’re changing because your current car is too expensive, adding negative equity to a new agreement will probably make the underlying problem worse. In that situation, it’s worth slowing down and looking at all your options before signing anything.
If you’re at the end of your PCP agreement and your car is worth less than the final balloon amount, you can normally just give the car back to the finance company and the negative equity becomes their problem. However, this doesn’t apply if you are changing before the end of your agreement.
Should I go back to the original dealer?
You can go back to the original dealer if you want to, and it may be the most convenient option if you’re staying with the same brand or the dealer is located conveniently for your home or work. They may already have your details and know the car’s history, which can make the process feel easier.
But you don’t have to. Your PCP agreement is with the finance company, so another dealer can still take the car in part-exchange and arrange settlement of the outstanding finance.
It’s always worth getting more than one valuation for your car before agreeing to a deal. The original dealer may not offer the best part-exchange value, and a different dealer may be more interested in your car depending on its age, mileage, condition and used-car stock needs.
The same applies if you are changing brands. For example, there’s nothing stopping you from taking a PCP-financed Volkswagen to a Toyota dealer, or a PCP-financed Hyundai to a Mercedes-Benz dealer. The dealer just needs to know the settlement figure and decide how much it’s prepared to pay for the car.
Before taking your car into the dealership, you should certainly get a valuation done by an online car buying service. They often offer significantly more to buy your car than a dealer will, so at the very least you have something to negotiate with when you visit the dealership.
What should I check before signing the next agreement?
Before you agree to part-exchange your PCP car, make sure the numbers are clear. You should know the car’s part-exchange value, the finance settlement figure, whether you have equity or negative equity, and exactly how that affects the next car deal.
Ask the dealer to show the settlement figure on the paperwork, along with how much of your current car’s value is being used to clear the finance. If there’s any equity, make sure it is shown clearly as part of your deposit or contribution towards the next car. If there’s any negative equity, make sure you understand whether you are paying it separately or adding it to the next finance agreement.
You should also check when the dealer will pay the finance company, especially if your next direct debit or optional final payment is due soon. Get written confirmation of what is being paid, who is paying it and when.
Do not cancel your existing finance direct debit until the finance company confirms that the agreement has been settled. It may be tempting to cancel it as soon as you hand the car over, but doing that too early can cause problems if the settlement payment is delayed.
Finally, don’t focus only on the monthly payment for the next car. A lower monthly payment may still come with a larger deposit, longer finance term, higher interest rate or negative equity carried over from the old agreement. Look at the full cost before deciding whether the deal actually helps you.
The bottom line
You can part-exchange a PCP car at another dealership. There’s no rule that says you have to go back to the same dealer that originally supplied the car, and you don’t have to stay with the same brand.
The important part is settling the finance correctly. The dealer taking your car in part-exchange needs an up-to-date settlement figure, the finance company needs to be paid on time, and any equity or shortfall needs to be clearly shown in the next deal.
Part-exchanging can be simple and convenient, especially if your car is worth more than the settlement figure. If the car is worth less than the finance owed, take more care. The dealer may still be able to build a new deal around it, but that does not automatically make it a good idea.
Read more:
Related posts
Latest Post
No Comments