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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 providing you with interactive financial calculators and tools, publishing original and objective content. We also allow users to conduct research and evaluate information for free - so that you can make financial choices with confidence. Bankrate has agreements with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies that compensate us. This compensation may impact how and when products are featured on this site, including for instance, the sequence in which they be listed within the categories of listing, except where prohibited by law. This applies to our mortgage or home equity products, as well as other products for home loans. However, this compensation will have no impact on the information we provide, or the reviews appear on this website. We do not contain the vast array of companies or financial offers that may be accessible to you.



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5 minutes read Read March 02, 2023.
Writer: 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 librarian at the local library in which she assists the community access information about financial literacy, as well as 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 dedicated to helping readers gain the confidence to control their finances through providing precise, well-researched and well-researched content that break down complex subjects into bite-sized pieces.









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Trading and refinancing your car are two distinct processes -- so neither is superior nor inferior than one or the other. The advantages and disadvantages of each depend on what you wish to achieve with your car and your finances. Is refinancing or trading in your car better? Both refinancing or trading your car can save you money, but the best option for you is dependent on the goals you have set. is the better choice for those who want to stay to your current vehicle but want to change the conditions for your loan. You may qualify for the lowest interest rate when your credit score has improved since the time you first borrowed an auto loan. This could mean that you will pay a lower monthly amount and less interest overall. Making use of your car as a means to increase your down payment. If you're looking to purchase a different vehicle, selling it -selling it to a dealer -- will allow you to have more money to work with. It may also mean better loan terms as you are able to borrow less on your next vehicle. Refinancing instead of. trading for a car. You are able to refinance your car loan either with your current or a new lender. If you are lucky it allows you to reduce the interest rate or get an extended loan term. Both will lower the monthly cost of your loan and increase the amount of your car loan less expensive each month. However, refinancing to a means you will pay more interest. And while refinancing is an option to consider if you're happy with your current vehicle There are lenders who have specific requirements that you must meet to qualify. Trading in a car is much easier. Once you research the value of your car and then you are able to visit various dealerships to determine what they can offer you. The aim is to get rid of your vehicle, and then apply the money to . If you've got any in the bank, you can utilize it to make the down payment you make for your next car. Ultimately, it is a better choice if you want to switch things up and are confident that you will get a good deal on a new loan -- and the purchase of a used or new vehicle. How do you refinance your car? Refinancing is essentially similar to . It is better than selling your car if you enjoy your vehicle and wish to lower your monthly payment. If your credit has improved and you have equity in your car or you want to include a co-borrower then refinancing is the best way to move. 1. Gather your documents. You should know how much you have to pay for your car and your credit score. Lenders are also likely to see your financial information and know more about your vehicle, such as its model year and mileage. 2. Study rates and lenders. Check out and the common requirements of lenders. Apart from having an excellent credit score and solid finances The majority of lenders require that your vehicle be less than 10 years old and under 100,000 miles on it. Many lenders also require a minimum loan amount you'll need to meet to qualify. 3. Apply with several lenders. Much like a new auto loan one should apply for with banks, credit unions and online lenders. This lets you examine rates without impacting your credit score, which allows you to pick the best refinance option. 4. Check out how you will be able to know when the loan will be paid off. When you sign your loan documents, be sure the lender either sends you the funds needed to pay off your loan or pays it for you. You'll need to continue paying your loan until the current loan is fully paid off. How trading in your car works . Dealers want 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 handled on its own. You are able to trade in your car at multiple dealers even if you decide not to buy a car with the car you choose. 1. Research your car's value. Sources like Kelley Blue Book and Edmunds offer average sales prices for a wide variety of vehicles. Check to know you're getting a fair price in exchange for your used car. 2. Check your loan. Each vehicle appreciates in value. But if you owe , it can make selling your car difficult. Although you can still sell it, you may have to cover the remainder of your loan if the sale price is too low. 3. Come prepared to bargain . Much like buying cars, you could bargain your trade-in. If the car you are selling is in excellent condition considering its age, and has very low mileage, you may be able to squeeze more from the seller. 4. Give the keys to the dealer. If you have found an auto dealer to trade in your vehicle and then sign any paperwork and get the title transferred. From here, you will have to either pay off your vehicle loan as well as use the funds as part of your down payment for your next ride. How can you lower the cost of your monthly installment There are a few additional ways you can go about however, some of them could cost more in the long run. Defer your payments Most lenders will let you defer your payments for up to three months if you are experiencing an immediate financial crisis. However, you shouldn't miss the payment completely. Instead, the lender tacks it on until the end of your loan period. So, you won't only need to pay the loan later, but you will be liable for interest charges. But, it's a common solution if you're unable to make the monthly installment. Just be aware that deferrals are not permanent and doesn't lower the overall cost of the loan. There are costs and penalties, which are outlined in your agreement for forbearance. In order to initiate a deferral, you'll probably need to send a hardship letter in writing to the lender. The letter should explain why you must defer payments and when you will take them back. The lender could then require documents that prove the request and helps prove the financial hardship you're facing. Not everyone is granted a deferral. For instance, if your credit score is not great or your income is declining it is possible that you will not be eligible. Request a loan modification instead of refinancing with a different lender, you can try . It may be willing to extend the loan duration which can reduce your monthly payment- or adjust your rate of interest. This being said that a lender may not be willing to alter your loan. You are responsible for the payment of the loan at the time you sign your contract consequently, 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 struggle to make a large lump-sum payment every month, consider breaking it up into two. The same amount, but it will be more in line with your payment schedule. In addition Biweekly payments are likely to reduce the amount of interest accruing for your loan. It is best to cut back on other expenses so that two smaller payments don't place a strain on your budget. But biweekly payments still add up to the same amount every month, so it won't be a solution when your monthly payments are excessive. The next steps, ultimately your decision to either refinance or sell your car is based on what you'd like to get out of your car. A refinance is the best option if you want to continue to drive it however you require different conditions to your loan. However, if you'd like to switch things up and drive something new then you could trade in your current vehicle to help you pay for your down. It's generally recommended to put between 10 to 20 percent down on a car, and having a trade-in can help reduce the burden. Either way, be sure to do your research and know your car's value before searching for lenders or going to an auto dealer.


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Written by Personal and business finance Contributor

Kellye Guinan is a freelance editor and writer with more than five years ' experience within personal finances. She is also a full-time worker at her local library in which she assists the community get information about financial literacy, among other subjects.



Edited 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 the confidence to control their finances through providing clear, well-researched information that breaks down otherwise complicated subjects into digestible pieces.






Auto loans editor




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