I want to trade in, what happens to my finance agreement?

When a customer trades in an asset (e.g. a vehicle) that is still subject to finance, the process can be managed through a few key steps to ensure that both the existing finance is settled and the new finance agreement for the replacement asset is arranged. Here’s how it typically works:

1. Check the Outstanding Finance Balance

• The customer contacts their current finance provider to obtain a settlement figure, which is the amount needed to pay off the existing finance agreement.
• This figure includes the remaining principal balance. Early repayment fees or interest rebates, depending on the agreement.

2. Determine the Trade-In Value

• The dealer evaluates the current asset and provides a trade-in value offer. The trade-in value may be higher or lower than the settlement figure for the outstanding finance.

3. Scenarios for Trade-Ins with Outstanding Finance

• Positive Equity (Trade-In Value > Settlement Amount)
  • If the trade-in value exceeds the outstanding finance, the customer has positive equity.
  • The excess amount can be applied as a deposit for the new asset.

• Negative Equity (Trade-In Value < Settlement Amount)
  • If the trade-in value is less than the settlement figure, the customer has negative equity. In the trade this is referred to as “Fresh Air Finance”. The customer generally pays the shortfall out of pocket.

4. Settling the Existing Finance

• The dealer may offer to handle the settlement directly with the current finance provider.
• Once the settlement amount is paid, the finance provider releases the asset from any financial encumbrance (Usually under HPI).

5. Completing the New Asset Finance Agreement

• The customer enters into a new finance agreement for the replacement asset.
• The terms of the new agreement (e.g., deposit, loan amount, interest rate) are influenced by the trade-in equity (positive or negative) and any deposit the customer provides separately.

6. Transfer of Ownership and Documentation

• The dealer assumes ownership of the trade-in asset once the finance is settled.
• The customer receives the new asset under the terms of the new finance agreement.
• Documentation/ invoice, including proof of settlement and transfer of ownership, is typically provided.

7. Important Considerations

• Settlement Timing- Ensure that the finance provider confirms settlement to avoid any risk of outstanding debt or additional interest charges.
• Ownership Transfer- In hire purchase or lease agreements, ownership only transfers to the dealer after settlement is confirmed by the existing finance provider.

8. Impact on Credit

• If the process is managed correctly, the customer’s credit record will show the old finance agreement as settled.
• Entering into a new agreement will reflect as a new debt on their credit file.

9. Example Trade-In Process Summary

1. Get settlement figure – Customer contacts current finance provider.
2. Trade-in evaluation – Dealer provides trade-in value for the asset.
3. Settle finance – Dealer or customer settles the outstanding balance.
4. New agreement – Customer signs a new finance agreement.
5. Transfer ownership – Ownership of the trade-in transfers to the dealer.
6. Delivery – Customer receives the new asset.