You’ve taken out a loan for a car and now you want to change to a different vehicle? We can totally relate.
But is this actually possible? At first sight, it seems like a perfectly reasonable request. In this article, we’ll cover everything you need to know about the topic.
In short: It’s not possible to change your current loan to a different car. That said, there are plenty of alternatives and we’ll go through them all.
Why would you want to swap car finance from one car to another?
There are many potential reasons why you would want to change your current loan arrangement.
Very often, you only know if a car is right for you once you’ve driven it for a while.
You may find the car is too small for your needs. In fact, this is by far the argument we encounter most frequently.
You may find the car is too big and impractical for your needs.
You may simply dislike how the car responds and drives.
That said, for the large majority, the real motivation is to bring down the costs of their loan. You may have bought the car on an impulse or at a time when your financial situation was better than it is now.
In that case, moving to a new, more affordable model may seem like a great way to cut costs.
Why it’s not possible to swap car finance from one car to another
The thing is that simply returning your current car and getting a different one doesn’t work within your existing loan – rare exceptions excluded.
This is mainly because the entire deal was based on a variety of factors very specific to you and the moment you applied for the loan:
The value of the car at the time (it will have depreciated by now),
The general rate of borrowing at the time (the cost of borrowing may have edged up since then),
Your financial situation at the time (you may have been in a better position then),
The situation at the dealership at the time (they may have had some form of promotion going on or they may have wanted to shift more units),
The car market at the time (cars may have been more available back then).
All of this means that whatever financial deal you strike today will be very different from the one you struck when you bought the car.
Some dealers will offer some form of part-exchange on an existing contract. But this is rare and even then, they will take all of these factors into consideration in some form.
Alternative Options #1: Settlement
You do usually have one option at your disposal to realise your plans nonetheless. Which is to ask the lender – which can either be your bank / credit untion or the dealership itself – if you can pay off the remaining loan with one balloon payment.
What this means is that instead of continuing to fork over your instalments each month for a few more years, you pay the entire outstanding sum right now. After this, you are free to get a new deal for a different car.
The thing is: Settlement is hardly ever a serious option for most drivers. The entire point of swapping car finance to a different, cheaper car is precisely that your budget isn’t sizeable enough to accommodate the current loan. If you did have all that money, you probably would have paid for the car in cash in the first place.
This is why settlement is usually not practical.
Another problem: Negative Equity
That’s not the only thing making a settlement difficult. Even if you really did want to make it work, you may not be in the position to do so.
For a settlement to work, the car needs to be worth more or just enough than the remaining loan. More often than not, this will not be the case. Especially in the beginning, depreciation sends the value of your car spiralling down.
Which means that your car is now worth less than what you still need to pay back. This is called “negative equity”.
It is possible to still sell the car and apply for a new car finance agreement. But this loan would definitely be on worse terms than before, because, in fact, you now not only have to pay back the monthly instalments for your new vehicle, but also the negative equity left after the settlement. Also, you may be required to have at least a good credit score to be eligible.
This, for sure, is not an ideal situation.
Alternative Options #2: Refinance
Refinancing a loan is by far more agreeable than settling. It is based on the premise that you can get a better deal today than at the time of your initial one.
Refinancing is a simple concept and an entire industry has mushroomed around it. While it was still somewhat uncommon to refinance a loan one or two decades ago, today it’s perfectly normal.
There are just two issues with this.
For one, you’ll be hard pressed to get a better deal right now. In fact, car finance for most of us will have become more expensive rather than more affordable. That said, if your financial situation has significantly improved, this may still be possible.
Secondly, refinancing is not actually about getting a new car. It is about getting a new loan. You may be spending less for it each month, but you’d still be driving around in the same model.
Alternative Options #3: Buy a second car
If you really want to get yourself a different car because your current one doesn’t fulfill your needs, there is a third option at your disposal: Simply buy the car you want on top of the one you’re currently driving.
This may sound very counter-intuitive and hard to pull off. Still, it’s not quite as impossible as it may seem.
The way to do this is to first renegotiate your existing loan arrangement. Try to bring down your monthly payments to save a little bit each month. This will give you more financial leeway. Then, find the cheapest version of a car that works for you. Don’t buy it on credit, but instead opt for buying it outright. It will have to be a very good deal, but even today, it is still possible to buy cars at a very low price as long as they’re not particularly popular.
If you can find the necessary liquidity to make this option work, it is probably your best bet. Or you can combine it with one of the previous alternatives: Sell the car, even with negative equity. Take a loan to pay off the negative equity and buy a really cheap car outright.
None of these alternatives are ideal.
This much is certain. Which is why we so strongly recommend to get car finance with a dealer you can trust and which can assist you in finding the right car for you from the get-go.
At Concept Car Credit, we pride ourselves on a huge selection of used cars in excellent condition. Whatever your needs, we have the car for you. And we update our selection every single day – so it pays off to come back to our website frequently or to drop by our Manchester showroom.
Looking for car finance? We’d love to hear from you!
Give us a call at 0800 093 3385.
Or use our contact form if you’d like to get an unconditional first quote.