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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 more than 5 years experience working in the field of personal finances. She also works full-time as a worker at her local library in which she assists the community get information on financial literacy, among other topics.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances through providing concise, well-researched, and clear information that breaks down complicated topics into digestible chunks.

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Trading and refinancing your vehicle are two distinct methods, so neither is superior nor inferior than one or the other. The benefits and drawbacks are contingent on the goals you’d like to get out of your vehicle and your financial situation. Is refinancing or trading in the car more beneficial? Both refinancing and trading your car could save you money, but the most effective option for you will depend on your objectives. It is the most appropriate option if you want to stick to your current vehicle however you want to alter the conditions that apply to your loan. You may be eligible for an interest rate that is lower in the event that your credit score has improved since you initially taken out your auto loan. This could mean you pay less monthly and less paid in interest overall. Making use of your car to pay for your mortgage means to increase your down payment. If you want to buy a different car, trading in -selling it to a dealer — will give you more money to work with. It may also mean better loan terms since you can get a lower interest rate on your new vehicle. Refinancing vs. trading in a car . You can refinance a car loan either with the current or new lender. If you are lucky it allows you to lower your interest rate , or even get the option of a longer loan term. Both can lower your monthly payments and increase the amount of your car loan affordable every month. However, refinancing will mean you pay more interest. And while 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. Selling your car is much easier. Once you research the value of your car You can then visit various dealerships to find out what they have to offer. The end objective is to sell your vehicle, and then apply the proceeds to . If you have any left to use, you could utilize it to make your down payment for your next car. Ultimately, it is an ideal option if you want to switch things up and know you can get a good deal on a new loan and a new or used car. How do you refinance your car? It’s basically the same as . It is better than selling your car in case you are happy with your vehicle and wish to lower your monthly payment. If your credit has improved, you have positive equity in your car or you want to get a co-borrower then refinancing is the best way to move. 1. Get your documents together. You should know how much you still owe for your car and your credit score. Lenders will also need to know your financial details and know more about your vehicle, including its model year and mileage. 2. Study rates and lenders. Check out and the common criteria for lenders. Besides excellent credit and solid financials The majority of lenders require that your vehicle be less than 10 years old and at least 100,000 miles. Most lenders also have an minimum loan amount that you will have to meet in order to be eligible. 3. Apply with multiple lenders. Like a car loan it is recommended to apply for with banks, credit unions and online lenders. It allows you to examine rates without impacting your credit score, which allows you to choose the most suitable refinance option. 4. Check out how the loan will be paid off. Once you sign your loan documents, make sure the lender either sends you the funds needed to pay off the loan or reimburses it for you. You’ll need to continue making payments until the current loan is paid off. How trading in your vehicle works. Dealers prefer to make trading in your car part of the process of buying a brand new car, but it’s an entirely separate process — and should be handled separately. You can shop your trade-in at multiple dealers even if you do not want to buy a new car using the dealer you select. 1. Research your car’s value. Sources like Kelley Blue Book and Edmunds list average sale prices for a wide variety of vehicles. Check to know you’re getting a fair price on your trade-in. 2. Check your loan. Every vehicle depreciates in value. However, if you are owed , it can make it difficult to trade in. Although you can 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 your trade-in. If your vehicle is in excellent condition considering its age, and has relatively low mileage, you might be able to squeeze more money from the seller. 4. Give the keys to the dealer. If you have found a dealer, you want to exchange your vehicle with, sign any documents and get the title transferred. From here, you will be required to pay off your car loan and use that cash as part of your down payment toward your next ride. How can you lower your monthly payments There are other ways you can go about however, some of them might cost you more over the long haul. Defer your payments Most lenders allow you to delay your payments for as long as three months in the event of temporary financial difficulties. But you don’t skip the payment completely. Instead, the lender will add it until the end of your loan period. This means that you won’t only need to pay the loan later, but you will be liable for interest charges. However, it is an option that is often used when you genuinely can’t afford the cost of your monthly payments. Just be aware that deferral is limited and will not reduce the overall cost of the loan. And you may incur charges and penalties that are outlined in your agreement for forbearance. In order to initiate a deferral, you’ll likely need to submit an application for hardship for your lender. The letter should state why you must defer payments, and when you’ll resume them. The lender will then ask for financial information that supports the request and helps prove the financial hardship you’re facing. Not everyone is granted deferral. For instance, if your credit score isn’t great or your income has decreased, you may not qualify. Apply for an loan modification rather than refinancing to a new lender, you can try . They may be willing to extend your loan duration and lower your monthly payments — or adjust the rate of interest. That being said the lender may not be willing to alter the terms of your loan. The responsibility for repaying your loan at the time you sign the contract, consequently, your lender may choose to deny your request. You can try it, but it may not be as efficient as refinancing. Pay biweekly If you find it difficult to pay a huge lump-sum monthly payment, try breaking it up into two. It will be the same payment, however, it will be more in line with your pay schedule. Additionally the biweekly installments tend to mean less interest being accrued for your loan. It is best to cut back on other expenses so that two smaller payments won’t put extra strain on your budget. However, biweekly payments equal the same amount each month, and therefore it will not be an option if your payments are already excessive. The next steps, ultimately, the choice to refinance or trade in your vehicle is contingent on what you’d like to get from your vehicle. A refinance is the best option if you want to keep driving it however you require different terms to your loan. But if you want to switch things up and try something new it is possible to trade in your current vehicle to supplement your down payment. It’s generally recommended to put between 10-20 percentage down when buying a vehicle, and having an option to trade in your vehicle can alleviate the burden. In any case, you should be certain to study and comprehend your car’s value before searching for lenders or going to a dealership.

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Written by Personal and business finance Contributor

Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal finances. She is also a full-time worker at her local library in which she assists the community gain access to information on financial literacy, among 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 passionate about helping readers gain confidence to take control of their finances through providing precise, well-studied data that breaks complicated subjects into digestible pieces.

Auto loans editor

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