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Should you refinance or trade on your car? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by offering interactive financial calculators and tools that provide objective and original content, by enabling users to conduct studies and evaluate information without cost, so that you can make decisions about your finances without trepidation. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that are advertised on this website are provided by companies that compensate us. This compensation could affect how and where products appear on this website, for example the order in which they appear within the listing categories, except where prohibited by law. Our mortgage, home equity and other home lending products. However, this compensation will not influence the content we publish or the reviews that you read on this site. We do not include the universe of companies or financial offerings that could be available to you.
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5 min read published March 02, 2023
Authored by Kellye Guinan. Written by Personal and Business Finance contributor
Kellye Guinan is a freelance editor and writer with over five years of experience in personal financial matters. She also works full-time as a worker at her local library which she assists her local community to gain access to information on financial literacy, among other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to manage their finances with precise, well-researched and well-researched content that break down complex topics into manageable bites.
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Trading and refinancing your car are two distinct procedures, and neither is better nor worse than one or the other. The benefits and drawbacks depend on the goals you’d like to achieve with your car and your finances. Are refinancing or trading your car better? Both refinancing and trading your car can save you money, however the best option for you is dependent on the goals you have set. It is the most appropriate option should you decide to remain to your current vehicle but want to change the terms that apply to your loan. You may qualify for the lowest interest rate when your credit score has improved since you first took out your auto loan. This will result in that you will pay a lower monthly amount and less interest paid all-around. Using your car as a allows you to supplement your down cost. If you are looking to purchase an additional vehicle, trading it inselling to a dealership can provide you with more cash to spend. It may also mean better loan terms since you can get a lower interest rate on your new vehicle. Refinancing is different from. trading in a car . You can refinance the car loan through the current or new lender. If you are lucky it allows you to reduce your interest rate or obtain the option of a longer loan duration. Both will lower your monthly payment and potentially help make your vehicle loan more affordable each month. However, refinancing is likely to cost you more interest. Refinancing is an option to consider if you’re happy with your current vehicle The lenders typically have specific requirements that you must meet to qualify. Trading in a car is much easier. Once you research the value of your car You can then visit various dealerships to find out what they can offer you. The end objective is to sell your vehicle, and then apply the proceeds to . If you’ve got any in the bank, you can use it as part of the down payment you make for the car you want to buy. It is ultimately the best option for those who would like to try something new and are confident that you will find a great deal on the new loan — as well as a new or used car. How refinancing your car works Refinancing is basically the same as . It is better than selling your car if you enjoy your car and want to lower your monthly installment. If your credit rating has improved, you have positive equity in your car , or you’re looking to include a co-borrower then refinancing is the best way to go. 1. Take your documents. You should know how much you have to pay for your car as well as your credit score. Lenders are also likely to see your financial information as well as more details about your vehicle, including its model year and current mileage. 2. Research lenders and rates. Review the typical conditions of lenders. In addition to having excellent credit and solid financials The majority of lenders require that your vehicle is less than 10 years old and to have at least 100,000 miles on it. The majority of lenders have a minimum loan amount that you will have to meet in order to be eligible. 3. Apply with many lenders. Much like a new auto loan it is recommended to apply to banks, credit unions , and online lenders. This lets you evaluate rates without impacting your credit score. This allows you to select the best refinance option. 4. Make sure you know how the loan will be paid off. Once you sign the loan documents, ensure that the lender either sends you the money to pay off your loan or pay it for you. You will need to keep paying your loan until the current loan is paid in full. What happens when you trade in your vehicle works. Dealers prefer to offer trading on your car an element of purchasing a new vehicle, but it’s a distinct procedure that should be handled on its own. It is possible to shop for your trade-in with multiple dealers, even if you decide not to purchase a vehicle with the one you decide on. 1. Research your car’s value. Resources like Kelley Blue Book and Edmunds offer average sales prices for a wide variety of vehicles. Be sure to confirm that you’re getting a good deal on your trade-in. 2. Check your loan. Every vehicle is worth less. If you have a loan , it can make it difficult to trade in. While you are still able to trade it in, you could have to cover the remainder of the loan in the event that the price is too low. 3. Be prepared to negotiate . Like buying a car, you can negotiate the price of your trade-in. If your car is in decent condition considering its age, and has an average mileage, you may be able to negotiate more out of the dealer. 4. Give the keys to the dealer. Once you find a dealer, you want to sell your car with, sign any documents and then transfer the title. From here, you will be required to pay off the vehicle loan or use the money to make a down payment toward the next car you purchase. How can you lower your monthly payments There are several additional ways you can go about , although some of them could cost more over the long haul. Pay off your debts in advance Most lenders will let you defer your payments for up to three months when you’re experiencing an immediate financial crisis. However, you shouldn’t miss the payment entirely. Instead the lender adds it until the end of the loan period. So, not only will you have to pay the loan later, but you will be liable for any additional interest. However, it is an option that is often used when you are unable to afford your monthly payment. But be aware that the deferral is limited and doesn’t lower the total cost of your loan. And you may incur costs and penalties, which will be listed in your agreement for forbearance. To begin a deferral you’ll probably need to send an emergency letter in writing to the lender. The letter should explain the reasons you need to defer payments, and when you’ll return them. The lender could then require financial information that supports the request and helps prove the financial hardship you’re facing. Not everyone is granted a deferral. For example, if your credit score is not excellent or your income has declined it is possible that you will not be eligible. Request an loan modification Rather than refinancing with a new lender Try . It may allow you to increase the loan duration — which could lower your monthly payments -or even alter your rate of interest. That being said, a lender may not be willing to alter your loan. You become responsible for paying the loan when you sign the contract, so your lender may choose to deny your request. It doesn’t hurt to try however it won’t be as effective as refinancing. Pay biweekly If you find it difficult to make a large lump-sum monthly payment, you can try splitting it into two. You will make the same payment, but it could better align with your pay plan. In addition the biweekly installments tend to reduce the amount of interest accruing to your loan. The best option is to cut back on other expenses so that two lower installments won’t be a burden to your financial budget. However, biweekly payments add up to the same amount each month, so it won’t make sense if your payments are already too high. The next steps, ultimately your decision to trade in or refinance your car depends on what you want from your vehicle. The best option is refinancing if you want to continue to drive it but need different terms to your loan. If you’d like to change things up and get a new car, you can trade in your existing vehicle to supplement your down payment. In general, it’s recommended to put between 10 and 20 percentage down when buying a car and a trade-in can help ease that burden. In any case, you should be certain to study and comprehend the value of your vehicle prior to searching for lenders or visiting a dealership.
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Written by a Personal and Business finance Contributor
Kellye Guinan is a freelance editor and writer with over five years of experience in personal finance. She is also a full-time librarian at the local library where she helps her community access information about financial literacy, in addition to other subjects.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to manage their finances with concise, well-researched and well-written facts that break down otherwise complex topics into manageable bites.
Auto loans editor
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