If your car is on Personal Contract Purchase finance, you may assume that you need to return to the dealership where you originally bought it when you want to change vehicles.
In many cases, that is not necessary.
You can potentially part exchange PCP car at another dealership, provided the outstanding finance is properly settled as part of the transaction [1]. The important relationship is with the finance company that owns the vehicle during the PCP agreement, rather than simply the dealership that originally supplied it.
Before agreeing to a part exchange, however, you need to understand your settlement figure, the current value of the car and whether you have positive or negative equity.
How Does PCP Car Finance Work?
Personal Contract Purchase is a car finance agreement which means you pay to use a vehicle for a set period and make monthly repayments [2]. Your repayments usually include a deposit, a set amount of monthly instalments and an optional final balloon payment. This is set by the Guaranteed Minimum Future Value, which is agreed at the start of the agreement.
During the agreement, you have use of the vehicle but do not own it outright. If you want to own the car at the end, you normally need to make the final payment.
That ownership point becomes particularly important when considering a PCP part exchange.
Can I Part Exchange My PCP Car Somewhere Else?
Potentially, yes.
You are not necessarily tied to the dealership that originally supplied the car simply because that is where you arranged the PCP.
However, because the finance company still owns the vehicle while finance remains outstanding, you cannot simply sell a car on PCP finance as though you own it outright. The outstanding finance needs to be dealt with first. MoneyHelper confirms that a vehicle financed through PCP cannot simply be sold before the finance has been settled because the customer is not yet its legal owner [3].
In a typical part exchange, the new dealership will establish how much is required to settle your existing PCP agreement and compare this with the amount it is prepared to offer for your car.
That comparison determines whether you have positive or negative equity.
Start by Getting Your PCP Settlement Figure
Before deciding whether to part exchange car on finance, ask your finance provider for an up to date settlement figure.
Your PCP settlement figure tells you how much is required to settle the finance early.
This is different from simply adding together your remaining monthly payments. An early settlement calculation takes account of the terms of the finance agreement and applicable interest adjustments. MoneyHelper recommends contacting the finance provider for a settlement figure as the first step when considering early repayment.
Settlement figures can also have a limited validity period. Check the date shown on the quotation before relying on it for a part exchange.
PCP Cars: What Is Positive Equity?
Positive equity is when your car is worth more than the settlement figure.
For instance, your settlement figure is £12,000 but another dealer is willing to offer you £14,000 for the car.
You would have £2,000 in positive equity.
Depending on how the transaction is structured, that value could potentially contribute towards your next vehicle.
Positive equity can also arise towards the end of a PCP agreement when the vehicle's market value exceeds its Guaranteed Minimum Future Value. The FCA has previously recognised that equity built up during a PCP can be used when moving into another agreement [4].
You should still compare the entire replacement finance deal rather than focusing only on the deposit created by your existing vehicle.
A larger contribution towards the next car does not automatically make the new agreement good value.
What Happens If My PCP Car Has Negative Equity?
Negative equity is the opposite situation.
It occurs when the vehicle is worth less than the amount needed to settle the finance.
Suppose your PCP settlement is £15,000 but the dealership values your car at £13,000.
That leaves a £2,000 shortfall.
That difference needs to be dealt with before the existing agreement can be fully settled.
A dealer may discuss ways of dealing with the shortfall as part of a replacement finance arrangement. However, you should understand exactly how this affects the amount being borrowed and the overall cost of your next agreement.
Do not focus solely on whether the monthly repayment looks affordable.
Ask what is happening to the PCP negative equity and check the total amount payable under the new agreement.
Can I Change My Car Before My PCP Agreement Ends?
You do not necessarily have to wait until the scheduled end of the agreement to change car on PCP.
Early settlement can allow you to exit the existing agreement before its original end date. Once the finance has been settled, the vehicle can be sold or used as part of another transaction.
Whether doing so makes financial sense is a separate question.
Your car's value may change considerably during the agreement. You may therefore find yourself with PCP positive equity, little or no equity, or negative equity depending on when you decide to change vehicles.
Getting both a current settlement figure and several realistic valuations can help you understand the position before agreeing to another finance deal.
Is Part Exchange the Same as Handing the Car Back?
No.
Part exchanging your PCP car and simply returning it at the end of the agreement are different options.
At the scheduled end of a PCP, consumers will generally have several choices. These include paying the PCP balloon payment and keeping the car, returning the vehicle, or entering into another finance agreement.
On the other hand, if you're just returning the car, the mileage and condition can be important. You can be charged for excess mileage, or condition outside the relevant standard.
A part exchange is where you agree a value for the vehicle and use it as part payment for another purchase or finance deal.
What About Voluntary Termination?
Voluntary termination is another option, but it should not be confused with part exchange.
Under the Consumer Credit Act, consumers with qualifying PCP agreements can have the right to end the agreement once the relevant conditions are met [5]. For PCP, the 50% calculation includes the balloon payment. This means consumers often do not reach the required amount until relatively late in the agreement.
If you have paid less than the required amount, you may need to make up the difference to exercise voluntary termination. Other liabilities can also arise depending on the condition of the vehicle and the agreement.
Voluntary termination does not allow you to capture positive equity in the same way that settling and selling a vehicle potentially can.
It is therefore worth understanding the difference before choosing how to leave an existing PCP agreement.
Should I Compare Offers From Different Dealerships?
Yes.
One advantage of considering another dealership is the ability to compare valuations.
The dealership that originally supplied your car may offer a convenient route into another vehicle, but convenience does not necessarily mean it offers the best financial outcome.
Before proceeding, consider obtaining:
- Your current settlement figure from the finance company.
- A valuation from your existing dealership.
- Valuations from other dealerships or car buying services.
- Details of any replacement finance agreement.
- The total amount payable on the new finance.
This allows you to compare the whole transaction rather than simply comparing monthly payments.
Can Part Exchanging My Car Affect a PCP Claim?
Part exchanging or settling a vehicle is a separate issue from whether the original finance agreement may later be relevant to a PCP claim.
The FCA's car finance compensation work concerns historic finance arrangements, including certain commission arrangements and whether required information was adequately disclosed. PCP and HP agreements can fall within the scheme where the relevant criteria are satisfied.
Therefore, changing or part exchanging the vehicle does not by itself establish whether someone had mis-sold PCP car finance.
Equally, PCP claims, or car finance claims in general, are not complaints about whether you received a good part exchange valuation.
For PCP finance claims, the relevant circumstances concern the original finance agreement and whether it meets the applicable criteria.
Keeping copies of your original PCP car finance agreement and related documents can therefore be useful even after you have changed vehicles.
What Should I Check Before Part Exchanging a PCP Car?
Before agreeing to a PCP part exchange with another dealership, make sure you understand the numbers involved.
Start with your settlement figure and compare it with realistic valuations of the vehicle.
If you have positive equity, establish exactly how that value will be used. If you have negative equity, make sure you understand how the shortfall will be paid and whether it affects your new borrowing.
You should also review the replacement finance independently from the part exchange.
Check the APR, deposit, monthly repayments, term, optional final payment and total amount payable. A dealership offering more for your current car could still offer a less competitive finance agreement on the replacement vehicle.
The Bottom Line
You can potentially part exchange your PCP car at another dealership. You are not automatically required to return to the dealer that originally supplied the vehicle.
The crucial factor is the outstanding finance.
Because you do not own a PCP financed vehicle outright while the agreement remains unpaid, the existing finance must be properly settled before ownership can transfer.
Get an up to date PCP settlement figure, find out what your car is realistically worth and establish whether you have positive or negative equity.
Then compare the complete replacement deal.
The dealership offering the highest part exchange valuation will not necessarily provide the best overall deal. The final cost of the replacement finance matters just as much as the value placed on the car.
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References:
- You can potentially part exchange PCP car at another dealership, provided the outstanding finance is properly settled as part of the transaction - thecarexpert.co.uk/can-i-part-exchange-my-pcp-car-at-another-dealership
- Personal Contract Purchase is a car finance agreement which means you pay to use a vehicle for a set period and make monthly repayments - https://www.fca.org.uk/publication/corporate/diagnostic-report-motor-finance.pdf
- MoneyHelper confirms that a vehicle financed through PCP cannot simply be sold before the finance has been settled because the customer is not yet its legal owner - https://www.moneyhelper.org.uk/en/everyday-money/cut-your-car-finance-hire-purchase-and-other-finance-costs
- The FCA has previously recognised that equity built up during a PCP can be used when moving into another agreement - https://www.fca.org.uk/news/news-stories/our-work-motor-finance
- Under the Consumer Credit Act, consumers with qualifying PCP agreements can have the right to end the agreement once the relevant conditions are met - https://assets.publishing.service.gov.uk/media/64ad0cfcc933c10012f9e076/CCA_consultation_response_-_v7__new_format_.pdf