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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 over 5 years experience working in the field of personal finance. She also works full-time as a librarian at the local library which she assists her local community to get information on financial literacy, in addition to other topics.







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

Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain confidence to manage their finances with concise, well-researched, and clear information that breaks down complicated subjects into bite-sized pieces.









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The process of refinancing and trading your car are two different processes -- so neither is more or less than one or the other. The benefits and drawbacks depend on what you want to get out of your car and the money you have. Do you prefer refinancing or trading your car better? Both refinancing or trading your car could save you money, however the best choice for you will be based on the goals you have set. It is the most appropriate option should you decide to remain to your current vehicle but want to change the conditions of your loan. You may qualify for a lower interest rate when your credit score has improved since you first taken out your auto loan. This will result in you pay less monthly and less paid in interest overall. Using your vehicle as a loan allows you to supplement your down amount. If you're looking to purchase a different car, trading in -selling to a dealership -- will give you more money to spend. It could also lead to more favorable loan terms as you are able to get a lower interest rate on your new vehicle. Refinancing instead of. trading in a car You can refinance the car loan using your current or a new lender. In the ideal scenario it allows you to lower the interest rate or get the option of a longer loan term. Both can lower the monthly cost of your loan and increase the amount of your car loan less expensive each month. But, refinancing is likely to cost you more interest. While refinancing can be a good option if you're satisfied with the car you have There are lenders who have strict criteria you must meet to qualify. Making a trade in your vehicle is a much simpler process. Once you research the value of your car You can then visit various dealerships to find out what they will offer you. The ultimate aim is to get rid of your vehicle, and then apply the proceeds to . If you have some left in the bank, you can use it as part of your down payment on the next car. It is ultimately a better choice if you would like to try something new and are confident that you will obtain a bargain on the new loan -- as well as a new or used car. How refinancing your car works Refinancing is essentially similar to . It is better than selling your car in case you are happy with the car you drive and want to reduce your monthly payments. If your credit score has improved and you have equity in your vehicle or you want to get a co-borrower then refinancing is the best way to go. 1. Gather your documents. You should know how much you owe on your car and your credit score. Lenders will also want to see your financial information and know more about your vehicle, such as its model year and mileage. 2. Research lenders and rates. Find out the most common criteria for lenders. Besides good credit and solid finances, lenders typically require that your vehicle is less than 10 years old and have less than 100,000 miles. The majority of lenders have a minimum loan amount you'll need to meet to qualify. 3. Apply to multiple lenders. Much like a new auto loan, you should apply with banks, credit unions , and online lenders. It allows you to compare rates without affecting your credit score. This allows you to choose the most suitable refinance option. 4. Confirm how you will be able to know when the loan is to be paid back. When you sign the loan documents, make sure the lender or sends you funds to pay off the loan or pay it on your behalf. It is necessary to keep paying your loan until the current loan is paid off. How trading in your car works . Dealers want to trade in your car as an element of purchasing a new car, however it's an entirely separate process that must be handled independently. You can shop your trade-in with 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 provide average prices for a wide variety of vehicles. Be sure to confirm that you're getting the best 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. Even though you could still trade it in, you could have to cover the remainder of your loan when the selling price is too low. 3. Come prepared to bargain . Similar to buying a car, you can bargain your trade-in. If your car is in excellent condition for its age and has an average mileage, you might be able to negotiate more money from the dealer. 4. Hand over the keys. If you have found an agent to exchange your vehicle and then sign any paperwork and get the title transferred. From here, you will be required to pay off your car loan and use that funds as part of your down payment towards the next car you purchase. How can you lower your monthly payments There are other ways you can go about , although some of them might cost you more in the long run. Pay off your debts in advance Most lenders will allow you to defer your payments for as long as three months if you are experiencing an immediate financial crisis. However, you can't defer the payment entirely. Instead the lender tacks it on until the end of the loan period. Therefore, you won't only need to pay the loan later, but you'll be liable for any additional interest. But, it's a common solution if you're unable to make the cost of your monthly payments. But be aware that the deferrals are not permanent and won't reduce the overall cost of your loan. And you may incur charges and penalties that will be listed in your agreement for forbearance. In order to initiate a deferral, you'll likely need to submit an application for hardship in writing to the lender. The letter should explain the reasons you need to defer payments and the date you'll return them. The lender will then ask for financial information that supports the request and helps prove the hardship you are experiencing. It is not always possible to get a deferral. If, for instance, your credit score isn't excellent or your income has decreased, you may not qualify. You can request a loan modification rather than refinancing with a new lender, you can try . It might allow you to increase your loan period -- which could reduce your monthly payments- or adjust the rate of interest. However the lender might not be willing to modify the terms of your loan. You become responsible for paying your loan at the time you sign your contract, so your lender might decide to decline your request. You can try it however it won't be as efficient as refinancing. Pay biweekly If you find it difficult to make a big lump-sum payment every month, consider splitting it into two. It will be the same payment, but it could better align with your pay schedule. As an additional bonus, biweekly payments tend to mean less interest for your loan. The best option is to cut back on other expenses so that two lower payments won't put extra strain for your finances. But biweekly payments still make up the same amount each month, and therefore it will not be an option for you if your current payments are too high. Next steps ultimately your decision to either refinance or sell your vehicle is contingent on what you'd like to get out of your car. Refinancing is the better option if you want to keep driving it but require different terms for your loan. But if you want to make a change and drive something new then you could trade in your existing vehicle to supplement your down payment. It's generally best to put between 10 to 20 percentage down when buying a car with an option to trade in your vehicle can alleviate the burden. Whatever you decide to do, make 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 a Personal and Business finance Contributor

Kellye Guinan is a freelance editor and writer with more than five years ' experience within personal financial matters. She also works full-time as a worker at her local library in which she assists the community get information about financial literacy, as well as 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 the confidence to take control of their finances with clear, well-researched facts that break down complex topics into manageable bites.






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