Can I change my car on PCP early?

If you can't wait until you've paid all your scheduled payments, check out how to change cars in the middle of a PCP finance contract

BuyaCar team
Sep 21, 2021

Typical car finance contracts last three or four years, and a lot can change over that time. You may have become a parent. If that's the case, chances are that you’ll likely need a bigger car. Or you might find yourself with a much longer commute. So you may want a more economical car. Equally, you might have had a job promotion and you may want something more upmarket. If you decide you fancy a change, modifying your existing car can be difficult during a finance contract, but you might be able to swap it for a new one instead.

Luckily PCP finance (Personal Contract Purchase) deals are flexible, meaning changing cars can be pretty easy. The easiest way to change from one car to the next is at the end of the contract, when you can simply hand your current car back and take out a new contract on something else. But you can change cars in the middle of a PCP contract if needed, too.

Whether this is affordable or good value will largely depend on how much your current car is worth at the time of the change and what the remaining finance balance is. If the remaining balance is a lot more than the value of the car, you'll have to pay extra to change your car early. If, however, the car is worth a similar amount to the remaining debt, changing early shouldn't cost you much, if anything.

The most straightforward route is to 'trade in' your existing car for another one on a new PCP contract. In some cases, the current value of the car may be enough to pay off your old finance agreement entirely. In others, the value of the car won't cover the remaining debt and you'll need to pay the difference. This can often be added to finance on your next car - known as negative equity finance. You can also opt to end your finance contract early if the strain on your bank account is simply unsustainable.

Scroll down for full details or jump to specific advice on the following elements of changing a car on PCP finance:

Swapping a car on PCP: the settlement fee

Ending a PCP contract early will usually involve a settlement fee. This includes the value of the car that’s not yet been paid off (including the optional final payment - also known as the 'balloon' payment - needed to purchase the car), and usually some interest, but less than if you had continued with monthly payments.

Your lender will supply the figure needed to settle the finance, which the retailer of your next car will need. They will then be able to work out your new monthly payments taking into account any remaining debt on the old car.

If the value of your current car is more than the settlement fee, then your finance will be settled in full, and any value left over can be put towards a deposit on your new car, reducing monthly payments on your next car.

When a car is worth less than the settlement fee, however, you’ll need to make up the difference, either with a one-off payment or by taking out negative equity finance and spreading this cost over your next finance deal.

Depending on your circumstances, negative equity finance allows you to add the remaining settlement fee onto your finance agreement for your next car. Your monthly payments will then be increased to take into account the additional debt.

The best time to swap a car on PCP

New and used cars tend to lose value fastest at the beginning of a finance agreement. After this, their value usually drops at a slower rate.

PCP finance monthly payments are fixed throughout the contract, so they don’t keep up with the fast fall in the car’s value to begin with, but they are designed to catch up towards the end of the contract. This is why you're able to return the car when the contract ends: at the end of the contract the total you've paid should have covered the amount of value the car has lost over the period, plus interest.

In general, the closer you get to the end of the agreement, the less your settlement fee will be. The break-even point - when your car's value matches the remaining debt - can be an excellent time to change because it won't cost you anything and you can change cars earlier than you might have thought.

This only tends to happen in the final year of a PCP contract, as seen in the diagram below. In some cases your car may become worth more than the remaining debt. If this happens, then you'll be able to swap cars and use the difference - known as equity - towards the deposit, reducing the monthly payments on your next car. Alternatively, you may be able to have this repaid directly to you.

Car value and finance owed during an example PCP agreement


Getting the best deal when swapping a car on PCP

There's no negotiating when it comes to the settlement fee, but you do have some control over the other costs involved in swapping a car on PCP. By ensuring that you get the best value from these elements, then you'll be on your way to getting a great deal:

  • Your car's value The more you can get from your existing car, the less you'll have to pay towards your settlement fee, so push to get the best trade-in price that you can. Any reputable retailer or car buying service can settle finance on your behalf, no matter where you are getting your next one.
  • The price of your next car This one doesn't take a genius to work out: cheaper vehicles tend to result in lower finance monthly payments.
  • Your car finance interest rate It can be easy to overlook this when you're in a rush to swap cars, but low-rate finance can make a big difference to your monthly payments. There's no need to accept a high rate on the spot from a car dealer if you can find a better deal elsewhere, as higher interest charges mean higher monthly payments.

Swapping a car on PCP to save money

In general, switching from one car to a notably cheaper model should reduce your PCP monthly payments, as long as your current car isn’t worth a lot less than the settlement fee.

As you’d have to pay the difference if you were in this situation, any savings from lower monthly payments could be wiped out by the settlement fee, whether you paid this as a lump sum or used negative equity finance to pay it.

If you let a car retailer know how much you're able to spend, and the type of car that interests you, they can adjust the finance terms to try and meet your budget. In some cases, this may mean extending the length of the agreement, which results in lower monthly payments, but a larger amount to pay overall. This is because you would be borrowing money for a longer period, and paying more interest.


Swapping to a more suitable car on PCP

Sometimes you don't have a choice when it comes to getting a new car - even if you're in the middle of a PCP agreement. You might need to change your two-seat sports car for one with back seats, or require a more economical model for a new long-distance commute.

In this instance, you'll need to follow the standard process of getting a settlement fee from your lender and then seeing how this compares to your car's value.

Depending on the price of the car that you're looking for, swapping cars can result in higher or lower monthly payments.

Swapping to a better car early with PCP

There's rarely a month when a glistening new car with the latest technology isn't launched. Manufacturers know exactly how to present their wares and tempt drivers out of their existing vehicles.

There's no shame in succumbing to the temptation, as long as you're fully aware of the costs involved and can afford them - whether you want to change your five-year old car for a three-year old one, or a three-year old one for a new one.

In general, changing one car for a brand new one of a similar size will cost more unless you're coming towards the end of your PCP agreement and your car's value is close to the remaining debt that you owe.

It's worth remembering that you don't have to trade in your existing car if you can sell it for more elsewhere - with the agreement of your lender, as the company owns the car with PCP finance, not you. You can use the money from this sale to pay off the settlement figure, and if there's any left over, to put towards the new agreement which could result in lower monthly costs.

Swapping cars at the end of a PCP agreement

If you are looking to swap cars at the end of a PCP agreement, then it couldn’t be easier. You simply find the next new or used car that you would like, and let the retailer know that you are coming to the end of your current PCP arrangement.

It doesn’t matter if you want a car from a different manufacturer; any good car retailer will take your existing vehicle and settle the finance agreement on your behalf. If the car is worth more than the optional final payment, then you can put this amount towards the deposit on your next car, reducing your monthly payments.

In cases where the car's value is higher than the optional final payment, you can also request a range of quotes and sell your car for the best price - with the agreement of the lender. Any good retailer or car buying service will settle the finance on your behalf and return any surplus to you.

There is an alternative to swapping the car at the end of the contract if you've actually decided you'd quite like to keep the car. It is sometimes possible to refinance the optional final payment, meaning you split that final chunk of money into a further series of monthly payments to make eventual ownership of the car more affordable.


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