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Do you need to refinance or trade in your car? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. We also allow you to conduct research and evaluate information for free - so that you can make financial choices without trepidation. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site are from companies that compensate us. This compensation may impact how and when products are featured on the site, such as for instance, the order in which they appear in the listing categories and other categories, unless prohibited by law. Our mortgage or home equity products, as well as other home lending products. This compensation, however, does affect the content we publish or the reviews that you read on this site. We do not cover the entire universe of businesses or financial offerings that could be available 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 with more than five years of experience in personal finance. She is also a full-time librarian at the local library where she helps her community gain access to information on financial literacy, as well as other subjects.







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

Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of 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 superior nor inferior than either. The benefits and drawbacks depend on the goals you'd like to achieve with your car and your finances. Are refinancing or trading a car better? Both refinancing and trading in your vehicle can save money, but the best option for you is dependent on your goals. is the best option for those who want to stay with your car, but wish to alter the conditions of your loan. You may qualify for an interest rate that is lower in the event that your credit score has improved since you first took out the auto loan. This will result in you pay less monthly and less interest paid all-around. Using your vehicle as a loan means to increase your down cost. If you are looking to purchase another vehicle, trading it inselling to a dealership can give you more money to use. It could also lead to more favorable loan conditions since you will be able to get a lower interest rate on your new vehicle. Refinancing instead of. trading in a car You can refinance the car loan either with your current or a new lender. In the ideal scenario, the allows you to lower your interest rate , or even get an extended loan time. Both can lower your monthly payment and potentially increase the amount of your car loan affordable every month. However, refinancing to a means you will pay more interest. While refinancing can be an option to consider if you're happy with your current vehicle, lenders often have strict requirements you will must meet to qualify. Trading in a car is a simpler option. Once you research the value of your vehicle You can then visit various dealerships to see what they will offer you. The end goal is to sell your vehicle and use the proceeds to . If you've got any over, you can utilize it to make your down payment on the car you want to buy. Ultimately, it is a better choice if you want to switch things up and know you can obtain a bargain on an existing loan -- and a new or used car. How refinancing your car works Refinancing is essentially similar to . It is better than trading in your vehicle when you love your vehicle and wish to reduce your monthly payments. If your credit rating has improved and you have equity in your vehicle or you want to add a co-borrower, then refinancing is the best way to move. 1. Take your documents. You should know how much you owe on your car and your credit score. Lenders will also need to see your financial information and know more about your car, including the model year, as well as current mileage. 2. Study rates and lenders. Review the typical requirements of lenders. Besides excellent credit and solid financials, lenders typically require your car to be under 10 model years old and less than 100,000 miles. The majority of lenders have an upper limit on the loan amount that you will need to meet to qualify. 3. Apply with multiple lenders. Much like a new auto loan it is recommended to apply with credit unions, banks and online lenders. This lets you evaluate rates without impacting your credit score, allowing you to select the best refinance option. 4. Make sure you know how you will be able to know when the loan is to be paid back. Once you sign the loan documents, be sure the lender either gives you funds needed to pay off the loan or pay it on your behalf. You'll need to continue making payments until your current loan is paid in full. How trading in your car works Dealers like to trade in your car as part of the process of buying a brand new car, however it is a separate process that must be dealt with on its own. You can shop your trade-in at several dealers even if you choose not to buy a car with the one you decide on. 1. Learn about the value of your car. Websites such as Kelley Blue Book and Edmunds provide average prices for a range of vehicles. Check to know you're getting a good deal on your trade-in. 2. Check your loan. Every vehicle is worth less. If you have a loan the lender, it could make trading in difficult. While you are still able to trade it in, you could have to cover the remainder of the loan in the event that the cost is too low. 3. Come prepared to bargain . Like buying a car, you can negotiate the price of your trade-in. If your car is in good condition for its age and has an average mileage, you may be able to squeeze more money from the dealer. 4. Give the keys to the dealer. When you locate an agent to trade in your vehicle and then sign any paperwork and get the title transferred. Then, you'll have to either pay off your vehicle loan or use the cash as part of your down payment toward your next vehicle. How can you lower the cost of your monthly installment There are a few additional options you could consider to reduce your monthly payment, but some could cost more in the long run. You can defer payments with most lenders. will allow you to defer your payments for up to three months if you are experiencing short-term financial hardship. However, you shouldn't miss the payment entirely. Instead, the lender tacks it on to the end of your loan period. Therefore, you will not only have to make up the payment later, but you'll also be on the hook for any additional interest. But, it's an option that is often used when you genuinely can't afford the cost of your monthly payments. Be aware that deferrals are not permanent and won't reduce the overall cost of the loan. There are fees and penalties, which are outlined in your forbearance contract. To initiate a deferral, you'll probably need to send an emergency letter for your lender. The letter should state the reason you have to delay payments, and when you'll return them. The lender will then ask for documents that prove your request and helps establish the financial hardship you're facing. It is not always possible to get deferral. For instance, if your credit score isn't great or your income has declined, you may not qualify. Apply for a loan modification Rather than refinancing to a new lender, you can try . It might be willing to extend your loan duration -- which could lower your monthly payments -or alter your interest rate. This being said the lender might not be willing to change your loan. The responsibility for repaying your loan when you sign your contract therefore, your lender may choose to deny your request. It doesn't hurt to try, but it may not be as efficient as refinancing. Pay biweekly If you find it difficult to make a large lump-sum monthly payment, try splitting it into two. You will make the same payment, but it will be more in line with your pay schedule. As an additional bonus Biweekly payments are likely to mean less interest being accrued to your loan. It is best to reduce other expenses so that two smaller payments don't place a strain for your finances. However, biweekly payments equal the same amount every month, so it's not going to be an option for you if your current payments are excessive. The next steps, ultimately, the choice to trade in or refinance your car is based on what you want from your vehicle. The best option is refinancing when you plan to drive the car however you require different conditions on your loan. If you'd like to change things up and drive something new then you could trade in your current car to supplement your down payment. In general, it's a good idea to put between 10-20 percentage down when buying a car and an option to trade in your vehicle can alleviate the burden. Either way, be sure to do your research and know your car's value before searching for lenders or visiting the dealership.


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Written by Personal and business finance Contributor

Kellye Guinan is a freelance editor and writer with over five years ' experience within personal finances. She's also a full-time worker at her local library in which she assists the community access information about 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 the end of 2021. They are passionate about helping readers gain confidence to take control of their finances through providing concise, well-researched and well-written facts that break down otherwise complicated subjects into digestible pieces.






Auto loans editor




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