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Do you need to refinance or trade with your vehicle? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by offering interactive financial calculators and tools as well as publishing original and objective content, by enabling you to conduct research and compare information for free – so that you can make financial choices with confidence. Bankrate has partnerships with issuers, including 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 site are from companies who pay us. This compensation could affect how and when products are featured on this site, including for instance, the sequence in which they appear within the listing categories, except where prohibited by law. This applies to our mortgage, home equity and other home lending products. This compensation, however, does not influence the content we publish or the reviews that you read on this site. We do not cover the vast array of companies or financial deals that may be accessible to you.
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5 min read Published March 02, 2023
Writer: Kellye Guinan. Written by personal and business finance contributor
Kellye Guinan is a freelance editor and writer who has more than five years ‘ experience within personal finance. She also works full-time as a librarian at the local library where she helps her community access information about financial literacy, among other subjects.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to control their finances with concise, well-researched, and clear information that breaks down otherwise complex subjects into bite-sized pieces.
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Trading and refinancing your vehicle are two distinct procedures, and neither is more or less than one or the other. The advantages and disadvantages of each depend on what you want to get out of your car and the money you have. Are refinancing or trading the car more beneficial? Both refinancing and trading your car can save you money, however the best option for you is dependent on your objectives. It is the most appropriate option should you decide to remain to your current vehicle however you want to alter the conditions that apply to your loan. You could qualify for a lower interest rate in the event that your credit score has improved since you first took out an auto loan. This will result in you pay less monthly and less interest all-around. Making use of your car as a allows you to supplement your down cost. If you’re looking to purchase another car, trading in — selling to a dealership can provide you with more cash to use. It may also mean more favorable loan conditions since you will be able to get a lower interest rate on your next vehicle. Refinancing vs. trading in a car You can refinance a car loan using your current or a new lender. In the ideal scenario this will allow you to lower your interest rate , or even get an extended loan time. Both can lower your monthly payment and potentially help make your vehicle loan more affordable each month. But, refinancing will mean you pay more interest. Refinancing is an option for those who are satisfied with the car you have The lenders typically have strict criteria you need to meet to qualify. Trading in a car is a simpler option. When you’ve researched the value of your vehicle, you can visit different dealerships to see what they can offer you. The end objective is to sell your vehicle and use the money to . If you’ve got any to use, you could make it part of the down payment you make for the next car. Ultimately, it is an ideal option if you are looking to change things up and are confident that you will obtain a bargain on the new loan and the purchase of a used or new vehicle. What is the process for refinancing your car? Refinancing is basically identical to . It is better than selling your car when you love the car you drive and want to reduce your monthly payments. If your credit score has improved, you have positive equity in your vehicle or you’re looking to add a co-borrower, then refinancing is the way to take. 1. Take your documents. You must know what you still owe for your vehicle and credit score. Lenders are also likely to know your financial details and have more information about your vehicle, such as its model year and mileage. 2. Find out about rates and lenders. Review the typical criteria for lenders. Besides excellent credit and solid financials The majority of lenders require your car to be under 10 model years old and to have at least 100,000 miles on it. Many lenders also require an minimum loan amount that you will need to satisfy to be eligible. 3. Apply with many lenders. Similar to a new car loan it is recommended to apply to banks, credit unions and online lenders. It allows you to examine rates without impacting your credit score. This allows you to select the best refinance option. 4. Confirm how you will be able to know when the loan will be paid off. Once you sign the loan documents, be sure the lender or sends you funds to pay off your loan or pays it on your behalf. You will need to keep paying your loan until the current loan is paid in full. How trading in your vehicle works. Dealers prefer to trade in your car as part of buying a new vehicle, but it’s an entirely separate procedure that should be negotiated separately. You can shop your trade-in at multiple dealers even if you decide not to buy a car with the one you decide on. 1. Find out the value of your car. Sources like Kelley Blue Book and Edmunds provide average prices for a variety of vehicles. Check to know you’re getting the best price on your trade-in. 2. Check your loan. Every vehicle depreciates in value. But if you owe an amount, it may make selling your car difficult. Even though you could still trade it in, you could have to cover the remainder of the loan if the sale price is not enough. 3. Come prepared to negotiate . Much like buying cars, you could negotiate the price of your trade-in. If your car is in good condition for its age and has very low mileage, you might be able to negotiate more out of the dealer. 4. Transfer the keys. If you have found an auto dealer to exchange your vehicle with, sign any documents and then transfer the title. Then, you’ll either need to pay off the car loan and use that money as part of your down payment toward your next ride. How to lower your monthly payments There are other ways you can go about however, some of them may end up costing more in the long run. Pay off your debts in advance Most lenders allow you to delay your payments for as long as three months when you’re experiencing temporary financial difficulties. But you don’t skip the payment completely. Instead the lender adds it until the end of your loan period. So, you won’t only need to make up the payment later, but you’ll also be on the hook for additional interest. But, it’s an acceptable option if you genuinely can’t afford the monthly installment. Just be aware that deferral is limited and doesn’t lower the total cost of your loan. There are costs and penalties, which are outlined in your forbearance agreement. In order to initiate a deferral, you’ll likely need to submit a hardship letter in writing to the lender. The letter should explain why you must defer payments, and when you’ll resume them. The lender will then ask for financial information that supports your request and helps to establish the level of hardship you’re experiencing. Not everyone is granted deferral. If, for instance, your credit score isn’t excellent or your income is declining, you may not qualify. Request an loan modification Rather than refinancing with a new lender You can also try . It may offer to prolong your loan term — which could reduce your monthly paymentsor alter your interest rate. This being said the lender may not be willing to change the terms of your loan. You become responsible for paying your loan after you sign the contract, consequently, your lender might decide to decline your request. You can try it however it won’t be as effective as refinancing. Pay biweekly if you are struggling to pay a huge lump-sum monthly payment, you can try splitting it into two. The same amount, but it’s more aligned with your pay plan. In addition the biweekly installments tend to result in less interest being accrued for your loan. The ideal would be to reduce other expenses so that two lower payments don’t place a strain to your financial budget. But biweekly payments still equal the same amount each month, and therefore it will not be an option when your monthly payments are too high. The next steps, ultimately your decision to either refinance or sell your car depends on what you want out of your car. The best option is refinancing when you plan to continue to drive it but need different terms for your loan. But if you want to switch things up and try something new then you could trade in your existing vehicle to help you pay for your down. In general, it’s recommended to put between 10 and 20 percentage down when buying a vehicle and a trade-in can help reduce the burden. Either way, be sure to research and understand your car’s value before searching for lenders or going to a dealership.
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Written by a Personal and Business finance contributor
Kellye Guinan is a freelance editor and writer with more than five years of experience in personal financial matters. 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 topics.
Editor: 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 the confidence to take control of their finances with precise, well-studied information that breaks down otherwise complicated subjects into digestible pieces.
Auto loans editor
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