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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 over five years ‘ experience within personal finances. She also works full-time as a worker at her local library 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 since the end of 2021. They are dedicated to helping readers gain the confidence to control their finances through providing concise, well-researched, and clear information that break down complex topics into manageable bites.

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Refinancing and trading in your vehicle are two distinct procedures, and neither is more or less than the other. The benefits and drawbacks are contingent on what you want to achieve with your car and the money you have. Are refinancing or trading your car better? Both refinancing and trading your car can save you money, but the best option for you will depend on your goals. is the better choice for those who want to stay with your car, but want to change the conditions that apply to your loan. You may be eligible for an interest rate that is lower in the event that your credit score has improved since you initially borrowed your auto loan. This means that you will pay a lower monthly amount and less interest paid overall. Making use of your car as a means to increase your down amount. If you are looking to purchase an additional vehicle, selling it — selling to a dealership can allow you to have more money to work with. This could also result in more favorable loan terms since you can borrow less on your next car. Refinancing vs. trading in a car . You can refinance your car loan either with the current or new lender. If you are lucky it allows you to lower your interest rate or obtain a longer loan time. Both can lower the monthly cost of your loan and help make your vehicle loan less expensive each month. But, refinancing is likely to cost you more interest. While refinancing can be a good option if you’re content with your current car There are lenders who have specific requirements that you need to meet to qualify. Selling your car is a simpler option. After you have researched the worth of your vehicle, you can visit different dealerships to determine what they have to offer. The ultimate aim is to get rid of your vehicle and use the proceeds to . If you have some left over, you can utilize it to make the down payment you make for your next car. In the end, it’s the best option for those who are looking to change things up and know you can get a good deal on the new loan — as well as the purchase of a used or new vehicle. What is the process for refinancing your car? Refinancing is basically the same as . It’s more beneficial than selling your car when you love your car and want to lower your monthly installment. If your credit has improved or you have equity in your vehicle or you’re looking to include a co-borrower then refinancing is the best way to move. 1. Get your documents together. You must know what you still owe for your vehicle and credit score. Lenders will also need to know your financial details as well as more details about your vehicle, such as its model year and current mileage. 2. Find out about rates and lenders. Review the typical conditions of lenders. In addition to having an excellent credit score and solid finances the majority of lenders will require that your vehicle is under 10 model years old and under 100,000 miles. Many lenders also require an minimum loan amount you’ll need to meet to qualify. 3. Apply to multiple lenders. Like a car loan, you should apply to banks, credit unions and online lenders. It allows you to examine rates without impacting your credit score, which allows you to pick the best refinance option. 4. Make sure you know how the loan will be paid off. Once you sign your loan documents, make sure the lender either sends you the funds needed to pay off the loan or pays it for you. You will need to keep making payments until your current loan is paid off. How trading in your car works . Dealers want to make trading in your car part of the process of buying a brand new vehicle, but it is a separate procedure that should be dealt with separately. It is possible to shop for your trade-in with multiple dealers, even if you do not want to buy a new car using the car you choose. 1. Learn about the value of your car. Sources like Kelley Blue Book and Edmunds provide average prices for a range of vehicles. Check to know you’re getting a fair price for your trade-in. 2. Check your loan. Each vehicle appreciates in value. But if you owe an amount, it may make it difficult to trade in. While you are still able to sell it, you may have to cover the remainder of the loan if the sale price is not enough. 3. Prepare yourself to negotiate . Like buying an automobile, you are able to negotiate your trade-in. If the car you are selling is in excellent condition for its age and has an average mileage, you may be able to negotiate more out of the seller. 4. Hand over the keys. Once you find an agent to trade in your vehicle and then sign any paperwork and have the title transferred. After that, you’ll have to either pay off the car loan or use the money to make a down payment toward your next ride. How can you reduce the cost of your monthly installment There are a few additional options you could consider to , although some of them may end up costing more in the long run. Pay off your debts in advance Most lenders allow you to delay your payments for up to 3 months in the event of temporary financial difficulties. However, you can’t defer the entire payment. Instead, the lender tacks it on until the end of your loan term. This means that you will not only have to pay for the loan in the future, but you’ll be liable for any additional interest. It is however a common solution if you’re unable to make the monthly installment. But be aware that the delay is not a permanent solution and doesn’t lower the overall cost of your loan. There are costs and penalties, which will be outlined in your forbearance contract. To begin a deferral you’ll likely need to submit an application for hardship in writing to the lender. The letter should outline the reasons you need to defer payments and when you will take them back. The lender may then request financial information that supports your request and helps to establish the financial hardship you’re facing. Not everyone is granted a deferral. For instance, if your credit score is not good or your income is declining, you may not qualify. Request a loan modification Rather than refinancing with a different lender, you can try . It might allow you to increase your loan term and reduce your monthly paymentor alter your interest rate. However that a lender may not be willing to modify the terms of your loan. The responsibility for repaying your loan when you sign your contract therefore, your lender could decide to reject your request. It doesn’t hurt to try however, it might not be as effective as refinancing. Pay biweekly if you are struggling to pay a huge lump-sum monthly payment, you can try breaking it up into two. You will make the same amount, but it’s more aligned with your pay schedule. Additionally, biweekly payments tend to reduce the amount of interest for your loan. It is best to cut back on other expenses so that two lower payments won’t put extra strain for your finances. The biweekly installments still add up to the same amount each month, so it’s not going to make sense when your monthly payments are excessive. Next steps Ultimately, the choice to either refinance or sell 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 require different terms to your loan. However, 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 a good idea to put between 10-20 percentage down when buying a vehicle and the option of trading in your car can reduce the burden. In any case, you should be sure to do your research and know the value of your car prior to looking for lenders or visiting an auto dealer.

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Written by Business and personal 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 in which she assists the community access 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 committed to helping readers gain confidence to take control of their finances with precise, well-studied data that breaks complicated subjects into digestible pieces.

Auto loans editor

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