Can I trade in a car that’s still under finance?

Yes, you could part exchange a car that’s still under finance. First, you’ll need to get a settlement figure from your lender. If your car’s value is higher than the settlement figure, the difference can go towards your next car. If it’s worth less, you may have to pay the shortfall (negative equity).

What is a settlement figure in car finance?

A settlement figure is the amount you need to repay to end your current finance agreement early. It includes your remaining balance, any interest still due, and sometimes an early termination fee.

What happens if I have negative equity on my car?

If your car is worth less than your settlement figure, you’re in negative equity. You can either pay the difference upfront, roll it into a new finance agreement (increasing monthly payments), or wait until your loan balance reduces or the car's value increases.

Is it better to refinance instead of part exchange?

Refinancing may be a better option if you’re in negative equity and not ready to upgrade. It allows you to adjust your loan term or interest rate without changing vehicles. However, it could increase the total interest paid depending on the new terms.

Upgrading your car? How to trade in and refinance seamlessly

Written by Louise Haines Updated 31 Jul 2025

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Upgrading your car can feel like a big step, especially if you still have an existing finance agreement. But trading or refinancing a car and setting up a new deal can be more straightforward than you think.

To help clear up any questions, we’ve covered what trading in a car is, how part exchange works with car finance agreements, and if refinance could be a good option for you.

What is car part exchange?

Trading in a car – also known as part exchange – means swapping your current car for a new one. Instead of selling your car privately, you find a dealership who will offer you a trade-in value. The value of your old car then goes towards the cost of the new one, or toward a new finance agreement.

In a car finance deal, part exchange is popular because it reduces the amount you need to borrow, which could lead to lower monthly payments and better finance terms.

How does part exchange work on a financed car?

Part exchange could be used alongside car finance agreements like Personal Contract Purchase (PCP) and Hire Purchase (HP). Here’s how it works at the end of your agreement:

HP: If you’ve paid off the full amount of your HP agreement (including interest), you own the car outright. You could part exchange it and use its value as a deposit for a new car, with no remaining finance to settle.
PCP: If you don’t want to own the car at the end of the PCP agreement, you have the option to part exchange it. If the car is worth more than the balloon payment, you can use it towards your next car. If the car is worth less than the balloon payment, you might have to pay the difference.

Can you part exchange a car on finance within your loan term?

Yes, you could part exchange a car on finance, but you need to settle any remaining finance first. If you want to part exchange during your loan term, it works a bit differently because you still owe money on the finance agreement. Here’s how it works:

1. You request a settlement figure

A settlement figure is the amount of money needed to pay off the remaining balance on your car finance agreement early to trade your car in. If the value of your car is higher than the settlement figure, you could use the difference towards a deposit for your next car. But, if the car is worth less than what you owe, this is called being in negative equity, and you’ll need to cover the difference.

2. There may be early termination fees

Depending on the terms of your contract, you might also face early termination fees for ending the agreement early. It’s important to check first with your lender to make sure you factor these into the cost of part exchanging.

3. Check if you’re in negative equity

If the trade-in value you’re offered for your car is higher than the settlement figure, you’ll be in positive equity. This is a good position to be in, because you could either keep the difference or use it as a payment towards your next car.

But, if the car's value is lower than what you owe, this is called negative equity, and you’ll need to pay the difference – known as the shortfall. If you have negative equity, you may have a few options when part exchanging your car:

Roll negative equity into the new finance deal – If you start a new car finance agreement, you can sometimes carry over negative equity. This means the amount you still owe gets added to the finance for your new car. But, bear in mind that this could mean higher monthly payments on your new agreement.
Pay off the shortfall upfront – You could cover the negative equity directly by paying the difference to settle the finance. This allows you to start fresh with a new car finance agreement and not carry the debt over.
Hold off for now – If you're in negative equity, it could be wiser to hold off. You may want to wait until your car’s value goes up or you’ve paid off more of the loan before trading it in. This could help reduce the negative equity.

It could be a good idea to get a quote from your finance provider and find out how much you'd owe before deciding to part exchange.

Car finance part exchange step by step

If you do decide to go ahead with part exchange in your loan term, here’s some steps you could follow:

Check your finance terms – It’s really important to check and understand the terms of your current finance agreement, including early repayment fees or settlement terms.
Get a settlement figure – Contact your lender to get the settlement figure, which is the total amount you’ll need to pay.
Get a trade-in valuation – Ask your dealer to assess your car and give you a trade-in offer.
Check your equity status – If the trade-in offer is higher than the settlement figure, the extra value can go toward your new car. If it’s lower, you’ll need to settle the difference.
Set up a new finance deal – Once the dealer settles the outstanding finance, you can enquire about a car finance deal for your new car.

Is refinancing a better option for you?

If you find yourself in negative equity, you could consider refinancing instead of part exchange. This involves taking out a new loan to replace your existing car finance deal, and it could be a good option if you can get a lower interest rate, or adjust the loan term on your current car.

Refinancing can be a good option if your negative equity is small and you’d prefer to hold off on upgrading for now.

Please bear in mind that spreading your outstanding loan over a longer term can reduce the monthly payment but may increase the total amount of interest payable.

The takeaway

Part exchanging your car could be a great way for you to upgrade your car without having to start from scratch. Whether your car's worth more or less than what you owe, you may have options if you want to trade your car in. Just be sure to check your contract and how much your car is worth before making a decision.

Disclaimer: The information in this guide is intended for general information purposes and is not intended as financial advice. When considering car finance options, it’s important to review your individual circumstances and seek advice from a financial advisor.

Different lenders and finance providers may have different terms and conditions, so always read the fine print and speak with your lender about any potential fees, including early termination fees, settlement figures, or negative equity. Car Finance 247 does not offer financial advice and recommends contacting an advisor for personal guidance.