Part Exchange

Meaning and Definition

Part exchange, also known as trade-in, refers to the process of using an existing vehicle as a form of payment towards the purchase of a new vehicle. In car finance, part exchange involves trading in a current vehicle to the dealership or seller, who assesses its value and deducts that value from the total cost of the new vehicle. The trade-in value is typically used as a partial payment or as a reduction in the overall purchase price of the new vehicle.

Why it is important to know

Understanding part exchange is important for individuals looking to purchase a new vehicle while having an existing one. It allows them to use the value of their current vehicle to offset the cost of the new vehicle, reducing the amount of finance required. Part exchange simplifies the process by avoiding the need to sell the old vehicle separately. It can be a convenient option for individuals who want to upgrade their vehicle without needing to arrange a separate sale or handle the logistics of selling their existing vehicle.

Example in car finance

Suppose an individual wants to purchase a new car priced at £20,000 and has an existing vehicle. They decide to trade in their current vehicle as part of the purchase. The dealership assesses the trade-in vehicle and determines its value to be £5,000. The individual can then use this trade-in value as part payment towards the new car, reducing the finance amount required to £15,000 (£20,000 - £5,000). The trade-in value is deducted from the purchase price, and the individual can choose to finance the remaining amount through a car finance agreement.