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Should you refinance or sell on your car? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by offering interactive tools and financial calculators as well as publishing original and objective content, by enabling users to conduct studies and evaluate information at no cost – so you can make financial decisions without trepidation. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website come from companies that compensate us. This compensation could affect how and when products are featured on this website, for example for instance, the sequence in which they appear within the listing categories, except where 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 you see on this site. We do not include the entire universe of businesses or financial offerings that could be open to you.
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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 who has more than 5 years experience working in the field of personal financial matters. She also works full-time as a employee at the library in her town which she assists her local community to get information on 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 passionate about helping readers gain confidence to control their finances through providing precise, well-researched and well-researched content that breaks down complicated subjects into bite-sized pieces.
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The process of refinancing and trading your vehicle are two distinct processes — so neither is better nor worse than either. The benefits and drawbacks depend on the goals you’d like to achieve with your vehicle and your financial situation. Are refinancing or trading a car better? Both refinancing and trading your car could save you money, however the best option for you will depend on the goals you have set. is the better choice for those who want to stay with your current car but want to change the terms of your loan. You may be eligible for a lower interest rate in the event that your credit score has improved since the time you first taken out your auto loan. This will result in a lower monthly payment and less paid in interest all-around. Using your vehicle as a loan means to increase your down cost. If you’re looking to purchase another vehicle, trading it inselling it to a dealer — will allow you to have more money to work with. This could also result in more favorable loan terms since you can take out a lower loan on the new vehicle. Refinancing vs. trading for a car. You are able to refinance your car loan using the current or new lender. In the best-case scenario, the allows you to lower the interest rate or get the option of a longer loan duration. Both will lower your monthly payment and potentially make your car loan less expensive each month. However, refinancing means you will pay more interest. Refinancing is a good option if you’re satisfied with the car you have, lenders often have specific requirements that you need to meet to qualify. Making a trade in your vehicle is a simpler option. After you have researched the worth of your car You can then visit various dealerships to see what they will offer you. The end goal is to sell your car and then use the proceeds to . If you have any left to use, you could utilize it to make your down payment for the next car. It is ultimately the best option for those who would like to try something new and you know you’ll find a great deal on the new loan — as well as a new or used car. What is the process for refinancing your car? Refinancing is essentially similar to . It’s better than selling your car if you enjoy your vehicle and wish to reduce your monthly payments. If your credit has improved, you have positive equity in your car or you’d like to get a co-borrower then refinancing is the way to go. 1. Take your documents. You should know how much you still owe for your car and your credit score. Lenders are also likely to verify your financial records and have more information about your vehicle, including its model year and mileage. 2. Research lenders and rates. Review the typical conditions of lenders. In addition to having an excellent credit score and solid finances, lenders typically require your car to be under 10 model years old and have under 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 one should apply with credit unions, banks and online lenders. This lets you compare rates without affecting your credit score, which allows you to choose the most suitable refinance option. 4. Confirm how the loan is to be paid back. When you sign the loan documents, ensure that the lender either gives you funds needed to pay off the loan or pay it on your behalf. You’ll need to continue paying your loan until the current loan is fully paid off. What happens when you trade in your car works Dealers like to make trading in your car an element of purchasing a new vehicle, but it’s a distinct process that must be negotiated separately. You are able to trade in your car at multiple dealers even if you choose not to purchase a vehicle with the car you choose. 1. Find out the value of your car. Sources like Kelley Blue Book and Edmunds provide average prices for a range of vehicles. Be sure to confirm that you’re getting the best price in exchange for your used car. 2. Check your loan. Each vehicle appreciates in value. If you have a loan the lender, it could make it difficult to trade in. Although you can still sell it, you may need to pay the remaining of your loan if the sale price is not enough. 3. Be prepared to negotiate . Like buying a car, you can bargain your trade-in. If your vehicle is in decent condition given its age and an average mileage, you might be able to get more money from the seller. 4. Transfer the keys. If you have found an auto dealer to trade in your vehicle by signing any papers and then transfer the title. Then, you’ll have to either pay off the car loan and use that funds to make a down payment towards the next car you purchase. How to lower the cost of your monthly installment There are other options you could consider to however, some of them could cost more in the long run. Pay off your debts in advance Most lenders will allow you to defer your payments for up to three months in the event of temporary financial difficulties. But you don’t skip the entire payment. Instead the lender will add it until the end of the loan term. Therefore, not only will you have to pay for the loan later, but you’ll be responsible for interest charges. It is however an option that is often used when you’re unable to make the monthly installment. Just be aware that delay is not a permanent solution and won’t reduce the total cost of your loan. There are charges and penalties that will be outlined in your forbearance agreement. To initiate a deferral, you’ll most likely have to submit a hardship letter for your lender. The letter should outline the reason you have to delay payments and the date you’ll return them. The lender could then require documents that prove your request and helps to establish the level of hardship you’re experiencing. Not everyone is granted a deferral. For instance, if your credit score isn’t great or your income is declining, you may not qualify. Request an loan modification rather than refinancing with a new lender Try . They may be willing to extend your loan period which can lower your monthly payments -or even alter the rate of interest. However, a lender may not be willing to change your loan. The responsibility for repaying your loan at the time you sign your contract, so your lender could decide to reject your request. It’s not a bad idea to try however, it might not be as efficient as refinancing. Pay biweekly If you find it difficult to make a big lump-sum monthly payment, try breaking it up into two. It will be the same payment, however, it’s more aligned with your pay plan. As an additional bonus, biweekly payments tend to result in less interest being accrued on your loan. It is best to cut back on other expenses so that two lower payments won’t put extra strain on your budget. The biweekly installments still equal the same amount every month, so it’s not going to be an option when your monthly payments are too high. Next steps Ultimately your decision to either refinance or sell your vehicle is contingent on what you want from your vehicle. The best option is refinancing for those who want to keep driving it but require different conditions for your loan. But if you want to switch things up and drive something new then you could trade in your current car to help you pay for your down. It’s generally a good idea to put between 10-20 percentage down when buying a vehicle and the option of trading in your car can alleviate the burden. Whatever you decide to do, make 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 with more than five years of experience in personal finance. She is also a full-time employee at the library in her town which she assists her local community to get information about financial literacy, as well as other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are enthusiastic about helping readers gain the confidence to manage their finances by providing clear, well-researched facts that break down otherwise complicated topics into bite-sized pieces.
Auto loans editor
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