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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 smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling users to conduct research and compare information without cost, so that you can make financial choices without trepidation. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including the sequence in which they appear within the listing categories in the event that they are not permitted by law. This applies to our mortgage, home equity and other home loan products. However, this compensation will affect the content we publish or the reviews that appear on this website. We do not cover the universe of companies or financial offerings that could be accessible 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 with more than 5 years experience working in the field of personal finance. She’s also a full-time worker at her local library which she assists her local community to access information about financial literacy, among other subjects.

Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to take control of their finances through providing clear, well-researched information that breaks down otherwise complex topics into manageable bites.

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The process of refinancing and trading your car are two distinct procedures, and neither is superior nor inferior than 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 a car better? Both refinancing or trading your car could save you money, but the most effective choice for you will be based on your goals. is the better choice for those who want to stay with your current car but wish to alter the conditions that apply to your loan. You may qualify for the lowest interest rate if your credit has improved since you first taken out the auto loan. This could mean you pay less monthly and less interest paid overall. Using your vehicle as a loan allows you to supplement your down payment. If you’re looking to purchase another vehicle, selling it -selling it to a dealer — will allow you to have more money to use. This could also result in more favorable loan terms as you are able to borrow less on your new vehicle. Refinancing is different from. trading for a car. You are able to refinance your car loan either with the current or new lender. If you are lucky, the allows you to lower the interest rate or get the option of a longer loan time. Both of these will reduce the monthly cost of your loan and make your car loan affordable every month. However, refinancing means you will pay more interest. While refinancing can be an option for those who are content with your current car The lenders typically have specific requirements that you must meet to qualify. Making a trade in your vehicle is a much simpler process. When you’ve researched the value of your vehicle and then you are able to visit various dealerships to see what they have to offer. The ultimate objective is to sell your vehicle and use the proceeds to . If you have any left to use, you could utilize it to make your down payment on the next car. It is ultimately an ideal option if you want to switch things up and know you can obtain a bargain on a new loan and the purchase of a used or new vehicle. What is the process for refinancing your car? Refinancing is essentially similar to . It’s more beneficial than trading in your vehicle if you enjoy your vehicle and wish to reduce your monthly payments. If your credit score has improved and you have equity in your vehicle or you’re looking to include a co-borrower then refinancing is the way to move. 1. Gather 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 know more about your vehicle, including the model year, as well as current mileage. 2. Study rates and lenders. Find out the most common criteria for lenders. Apart from having good credit and solid finances, lenders typically require that your vehicle is under 10 model years old and to have at least 100,000 miles. Many lenders also require an minimum loan amount you’ll need to meet to qualify. 3. Apply with many lenders. Much like a new auto loan, you should apply to credit unions, banks and online lenders. This lets you examine 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 your loan documents, ensure that the lender either sends you the funds to pay off your loan or reimburses 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 offer trading on your car part of the process of buying a brand new car, but it’s an entirely separate procedure that should be negotiated separately. You are able to trade in your car at several dealers even if you choose not to buy a car with the one you decide on. 1. Research your car’s value. Sources like Kelley Blue Book and Edmunds offer average sales prices for a wide variety of cars. Be sure to confirm that you’re getting the best price in exchange for your used car. 2. Check your loan. Every vehicle is worth less. However, if you are owed , it can make it difficult to trade in. Although you can still trade it in, you could have to cover the remainder of your loan in the event that the cost is too low. 3. Come prepared to negotiate . Like buying an automobile, you are able to negotiate your trade-in. If the car you are selling is in good condition given its age and an average mileage, you may be able to squeeze more from the dealer. 4. Hand over the keys. Once you find an agent to sell your car with, sign any documents and have the title transferred. Then, you’ll be required to pay off the car loan as well as use the money as part of your down payment towards your next vehicle. How to lower the cost of your monthly installment There are other options you could consider to , although some of them may end up costing more over the long haul. You can defer payments with most lenders. will let you defer your payments for up to three months when you’re experiencing temporary financial difficulties. However, you can’t defer the payment entirely. Instead, the lender will add it to the end of your loan period. This means that you won’t only need to pay for the loan later, but you will also be on the hook for interest charges. But, it’s an option that is often used when you are unable to afford the monthly installment. Be aware that delay is not a permanent solution and will not reduce the overall cost of your loan. You could also be charged fees and penalties, which are outlined in your forbearance agreement. 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’ll take them back. The lender could then require documents that prove your request and helps establish the financial hardship you’re facing. Some people are not eligible for the option of deferring. If, for instance, your credit score is not great or your income has decreased, you may not qualify. You can request an loan modification instead of refinancing to a new lender Try . It may offer to prolong your loan term and reduce your monthly paymentsor alter the interest rate. This being said, a lender might not be willing to modify the terms of your loan. You are responsible for the payment of your loan after you sign your contract so your lender could decide to reject your request. You can try it however, it might not be as effective as refinancing. Pay biweekly If you find it difficult to make a big lump-sum monthly payment, you can try making it two payments. The same payment, however, it could better align with your payment schedule. As an additional bonus the biweekly installments tend to reduce the amount of interest being accrued for your loan. The best option is to cut back on other expenses so that two smaller installments won’t be a burden on your budget. But biweekly payments still equal the same amount every month, so it’s not going to be an option when your monthly payments are excessive. Next steps Ultimately your decision to either refinance or sell your car depends on what you’d like to get from your vehicle. A refinance is the best option if you want to keep driving it but need different terms for your loan. If you’d like to change things up and drive something new then you could trade in your existing vehicle to supplement your down payment. It’s generally recommended to put between 10-20 percentage down when buying a car with the option of trading in your car can alleviate the burden. In any case, you should be certain to study and comprehend the value of your vehicle prior to searching for lenders or going to a dealership.

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Written by Business and personal finance contributor

Kellye Guinan is a freelance editor and writer with over 5 years experience working in the field of personal finance. She’s also a full-time librarian at the local library in which she assists the community get information about financial literacy, in addition to other subjects.

Edited by Rhys Subitch Edited by Auto loans editor

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

Auto loans editor

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