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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 five years ' experience within personal finances. She is also a full-time employee at the library in her town which she assists her local community to access information about financial literacy, among other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to manage their finances by 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 better nor worse than the other. The benefits and drawbacks are contingent on the goals you'd like to get out of your vehicle and your financial situation. Do you prefer refinancing or trading a car better? Both refinancing and trading your vehicle can save money, however the best choice for you will be based on your objectives. is the better choice should you decide to remain to your current vehicle but want to change the terms of your loan. You could qualify for the lowest interest rate if your credit has improved since you initially borrowed an auto loan. This could mean that you will pay a lower monthly amount and less paid in interest overall. Using your car as a allows you to supplement your down amount. If you are looking to purchase a different vehicle, selling it -selling to a dealership could provide you with more cash to use. This could also result in better loan terms as you are able to get a lower interest rate on your new vehicle. Refinancing vs. trading in a car . You can refinance your car loan through the current or new lender. In the best-case scenario this will allow you to lower your interest rate or obtain a longer loan term. Both of these will reduce your monthly payments and help make your vehicle loan more affordable each month. However, refinancing will mean you pay more interest. While refinancing can be an option to consider if you're content with your current car There are lenders who have specific requirements that you must meet to qualify. Selling your car is much easier. Once you research the value of your vehicle and then you are able to visit various dealerships to determine what they can offer you. The end aim is to get rid of your vehicle and use the proceeds to . If you have some left in the bank, you can utilize it to make your down payment for the next car. In the end, it's an ideal option if you would like to try something new and know you can find a great deal on a new loan and the purchase of a used or new vehicle. How refinancing your car works Refinancing is basically the same as . It's better than trading in your vehicle if you enjoy the car you drive and want to reduce your monthly payments. If your credit has improved and you have equity in your car or you want to get a co-borrower then refinancing may be the way to go. 1. Get your documents together. You must know what you owe on your car as well as your credit score. Lenders will also need to know your financial details and have more information about your car, including the model year, as well as current mileage. 2. Study rates and lenders. Find out the most common criteria for lenders. Besides good credit and solid finances, lenders typically require that your vehicle be less than 10 years old and have less than 100,000 miles. Many lenders also require an minimum loan amount that you will have to meet in order to be eligible. 3. You can apply to several lenders. Much like a new auto loan it is recommended to apply for with credit unions, banks and online lenders. This allows you to evaluate rates without impacting your credit score, which allows you to pick the best refinance option. 4. Confirm how you will be able to know when the loan will be paid off. Once you sign your loan documents, make sure the lender or sends you funds to pay off the loan or reimburses it for you. You will need to keep paying your loan until the current loan is fully paid off. What is the process for trading your car works Dealers like to offer trading on your car part of the process of buying a brand new car, however it is a separate process -- and should be handled on its own. It is possible to shop for 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. Sources like Kelley Blue Book and Edmunds list average sale prices for a variety of cars. 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. However, if you are owed an amount, it may make it difficult to trade in. Although you can still trade it in, you could need to pay the remaining of your loan in the event that the price is not enough. 3. Prepare yourself to bargain . Similar to buying an automobile, you are able to bargain your trade-in. If your vehicle is in excellent condition given its age and very low mileage, you may be able to negotiate more from the seller. 4. Hand over the keys. When you locate an agent to exchange your vehicle and then sign any paperwork and have the title transferred. After that, you'll either need to pay off the car loan as well as use the cash to make a down payment for the next car you purchase. How to lower your monthly payment There are a few additional ways you can go about , although some of them may end up costing more in the long run. Defer your payments Most lenders will let you defer your payments for as long as three months in the event of short-term financial hardship. However, you can't defer the entire payment. Instead, the lender tacks it on until the end of your loan period. Therefore, not only will you have to pay the loan later, but you'll be liable for additional interest. However, it is an acceptable option if you genuinely can't afford the monthly installment. But be aware that the 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. To begin a deferral you'll most likely have to submit a hardship letter for your lender. The letter should state the reason you have to delay payments and when you will take them back. The lender will then ask for documents that prove the request and helps prove the level of hardship you're experiencing. It is not always possible to get a deferral. If, for instance, your credit score isn't great or your income is declining, you may not qualify. Apply for a loan modification Rather than refinancing with a different lender, you can try . It may be willing to extend your loan duration -- which could lower your monthly payments -or even alter your rate of interest. However that a lender might not be able to alter the terms of your loan. The responsibility for repaying your loan at the time you sign your contract so your lender may choose to deny your request. It doesn't hurt to try however it won't be as successful as refinancing. Pay biweekly If you struggle to pay a huge lump-sum monthly payment, try making it two payments. It will be the same amount, but it's more aligned with your pay plan. Additionally, biweekly payments tend to result in less interest being accrued to your loan. It is best to cut back on other costs so that two payments won't put extra strain on your budget. 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 too high. Next steps ultimately your decision to refinance or trade in your car depends on the goals you wish to get from your vehicle. Refinancing is the better option for those who want to keep driving it but need different conditions for your loan. However, if you'd like to make a change and try something new it is possible to trade in your existing vehicle to make up the difference in your down payment. It's generally recommended to put between 10-20 per cent down for a car with a trade-in can help alleviate the burden. In any case, you should be sure to research and understand your car's value before searching for lenders or visiting a 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 finances. She is also a full-time worker at her local library where she helps her community get information about financial literacy, as well as other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain confidence to take control of their finances with precise, well-studied information that breaks down otherwise complicated subjects into digestible pieces.
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