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5 min read published March 02, 2023.
Written by Kellye Guinan. Written by Personal and Business Finance Contributor
Kellye Guinan is a freelance editor and writer who has more than five years of experience in personal finance. She also works full-time as a worker at her local library in which she assists the community access information about financial literacy, as well as other topics.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain the confidence to control their finances through providing clear, well-researched information that breaks down complicated subjects into bite-sized pieces.
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Refinancing and trading in your car are two distinct procedures, and neither is more or less than either. The benefits and drawbacks depend on what you want to gain from your car and your finances. Are refinancing or trading a car better? Both refinancing or trading your car can save you money, but the most effective option for you will depend on your goals. is the best option for those who want to stay to your current vehicle however you want to alter the conditions of your loan. You may be eligible for an interest rate that is lower if your credit has improved since you initially borrowed the auto loan. This could mean a lower monthly payment and less paid in interest in the overall. Utilizing your car to pay for your mortgage allows you to supplement your down amount. If you are looking to purchase another vehicle, trading it inselling to a dealership — will allow you to have more money to spend. It could also lead to more favorable loan conditions since you will be able to get a lower interest rate on your next car. Refinancing vs. trading for a car. You are able to refinance a car loan using your current or a new lender. In the best-case scenario, the allows you to reduce your interest rate or obtain an extended loan term. Both of these will reduce the monthly cost of your loan and increase the amount of your car loan affordable every month. However, refinancing means you will pay more interest. And while refinancing is a good option if you’re content with your current car, lenders often have specific requirements that you need to meet to qualify. Making a trade in your vehicle is much easier. After you have researched the worth of your car and then you are able to visit various dealerships to determine what they have to offer. The ultimate objective is to sell your vehicle and use the proceeds to . If you’ve got any over, you can use it as part of your down payment on the next car. Ultimately, it is a better choice if you are looking to change things up and are confident that you will get a good deal on a new loan and an old or new car. How do you refinance your car? Refinancing is basically identical to . It’s better than trading in your vehicle when you love the car you drive and want to lower your monthly payment. If your credit has improved and you have equity in your car , or you want to get a co-borrower then refinancing is the best way to move. 1. Gather your documents. It is important to know the amount you still owe for your vehicle and credit score. Lenders will also need to verify your financial records and know more about your vehicle, such as its model year and current mileage. 2. Research lenders and rates. Review the typical criteria for lenders. Besides an excellent credit score and solid finances the majority of lenders will require that your vehicle is less than 10 years old and to have at least 100,000 miles. Many lenders also require an upper limit on the loan amount you’ll have to meet in order to be eligible. 3. Apply to many lenders. Much like a new auto loan it is recommended to apply with credit unions, banks and online lenders. This lets you examine rates without impacting your credit score, which allows you to choose the most suitable refinance option. 4. Make sure you know how the loan will be paid off. After you have signed the loan documents, make sure the lender either gives you funds needed to pay off your loan or pays it for you. It is necessary to keep paying your loan until the current loan is paid in full. What is the process for trading your vehicle works. Dealers prefer to trade in your car as an element of purchasing a new vehicle, but it’s an entirely separate procedure that should be handled separately. You can shop your trade-in at multiple dealers even if you choose not to buy a new car using the car you choose. 1. Find out the value of your car. Sources like Kelley Blue Book and Edmunds list average sale prices for a wide variety of cars. Be sure to confirm that you’re getting the best price on your trade-in. 2. Check your loan. Each vehicle appreciates in value. However, if you are owed the lender, it could make it difficult to trade in. Even though you could still sell the item, you might be required to pay for the rest of your loan if the sale cost is too low. 3. Come prepared to negotiate . Similar to buying a car, you can bargain your trade-in. If the car you are selling is in excellent condition given its age and very low mileage, you may be able to squeeze more from the dealer. 4. Give the keys to the dealer. Once you find an auto dealer to trade in your vehicle and then sign any paperwork and have the title transferred. From here, you will have to either pay off your car loan as well as use the money as part of your down payment towards your next vehicle. How can you reduce your monthly payment There are a few additional routes you can take to however, 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 3 months in the event of short-term financial hardship. But you don’t skip the entire payment. Instead, the lender will add it to the end of your loan period. This means that not only will you have to pay for the loan later, but you’ll be responsible for additional interest. But, it’s an acceptable option if you’re unable to make the monthly installment. But be aware that the delay is not a permanent solution and will not reduce the overall cost of your loan. There are fees and penalties, which are outlined in your forbearance contract. In order to initiate a deferral, you’ll probably need to send an emergency letter for your lender. The letter should state why you must defer payments and when you will take them back. The lender could then require details about your finances that support the request and helps prove the level of hardship you’re experiencing. Not everyone is granted deferral. If, for instance, your credit score is not good or your income has declined and you are not eligible, you might not be able to qualify. You can request a loan modification Rather than refinancing with a different lender You can also try . They may allow you to increase the loan period and reduce your monthly payment- or adjust your rate of interest. This being said the lender may not be willing to change your loan. You are responsible for the payment of your loan after you sign the contract, so your lender could decide to reject your request. It’s not a bad idea to try however it won’t be as efficient as refinancing. Pay biweekly if you are struggling to make a large lump-sum monthly payment, you can try breaking it up into two. The same amount, but it’s more aligned with your payment schedule. As an additional bonus the biweekly installments tend to mean less interest accruing to your loan. It is best to reduce other expenses so that two smaller installments won’t be a burden to your financial budget. However, biweekly payments add up to the same amount each month, so it’s not going to be a solution when your monthly payments are too high. The next steps, ultimately, the choice to trade in or refinance your vehicle is contingent on what you’d like to get from your vehicle. Refinancing is the better option if you want to continue to drive it however you require different conditions for your loan. If you’d like to change things up and get a new car it is possible to trade in your existing vehicle to help you pay for your down. In general, it’s recommended to put between 10-20 per cent down for a vehicle and a trade-in can help alleviate the burden. In any case, you should be sure to research and understand the value of your car prior to looking for lenders or visiting an auto dealer.
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Written by Personal and business finance contributor
Kellye Guinan is a freelance editor and writer with over 5 years experience working in the field of personal finance. She’s also a full-time librarian at the local library in which she assists the community access information about financial literacy, in addition to other subjects.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances through providing precise, well-studied information that breaks down otherwise complicated topics into bite-sized pieces.
Auto loans editor
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