Swapping cars on PCP finance

When you can't wait until the end of your finance agreement: how to swap cars on PCP finance

BuyaCar team
Jan 9, 2019

Typical car finance agreements last three or four years, and a lot can change over that time. You may have become a parent - so you’ll need a bigger car. Or you might find yourself with a brand-new job, and a much, much longer commute. So you’ll be wanting a diesel.

Luckily PCP (Personal Contract Purchase) deals are flexible, meaning changing cars, and even brands, is pretty easy.

The easiest way to change cars is at the end of an agreement, when you can simply trade in your current car for a new one. But you can change cars in the middle of a PCP agreement 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.

The most straightforward route is to trade in your existing car for another one on a new PCP agreement. In some cases, this may pay off your old finance agreement entirely. In others, it won't cover the remaining debt and you'll need to make up the difference. This can often be added to finance on your next car.

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Swapping a car on PCP: the settlement fee

Ending a PCP agreement early will usually involve a settlement fee. This includes the cost of the car that’s not yet been paid off (including the final "balloon" payment to purchase the car), and usually some interest, but less than if you had continued with monthly payments.

Your lender will supply the figure, which is needed by the retailer of your next car. They will then be able to work out your new monthly payments.

If the value of your current car is more than the settlement fee, then your finance will be settled in full, with a surplus that can be used towards a deposit on your new car, or repaid to you.

When a car is worth less than the settlement fee, you’ll need to make up the difference: either with a one-off payment or by taking out negative equity finance.

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 instalments will then be adjusted to take into account the increased 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 drops off at a slower rate.

PCP finance repayments are fixed, so they don’t keep up with the sharp reduction in the car’s worth to begin with, but they are designed to catch up as the agreement comes to an end. This is why you're able to return the car at the end: your repayments eventually cover the value that the car was expected to lose.

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 equals the remaining debt - can be an excellent time to change because it won't cost you anything. This only tends to happen in the final year of a PCP agreement, 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 towards the deposit. You can also ask for this to be 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 repayments.
  • Your car finance interest rate It can be easy to overlook when you're in a rush to swap cars, but low-rate finance can make a big difference to your monthly repayments. There's no need to accept a high rate on the spot from a car dealer if you can find a better deal elsewhere.


Swapping a car on PCP to save money

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

As you’ll have to pay the difference in this situation, any savings from lower monthly instalments could be wiped out by the fee, whether you pay this as a lump sum or use 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.


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 repayments.


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 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.

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 your existing one for more elsewhere - with the agreement of your lender.


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 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 final finance payment, then you can choose to be repaid the surplus or to put it towards the deposit on your next car.

In cases where the car's value is higher than the 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. 


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