This is a very tough question to ask anyone. But luckily, experts have provided answers to this question. This depends on what you want at the moment. After a while of driving an old car, the question “Should I refinance or trade in my car?” will arise in your mind.
At this point, you will have to consider your budget and what you want before making your final decision. This article will highlight the things you should consider and help you get the answer to the question, “Should I refinance or trade in my car?”
Trading and refinancing your car are two totally different procedures. None of them is better or worse; all you need is the one that works best for you. The drawbacks and benefits you get all depend on what you want to gain from refinancing or trading in your car.
Is Trading or Refinancing a Car Better?
Refinancing a car is the best option if you want to remain with your current car but change the terms of your loan. If your credit has improved since you first took out an auto loan, you may be eligible for a lower interest rate. However, this means that you get to make a lower monthly payment and also pay less interest overall.
Trading a car is also a very good option if you want a new look. It makes supplementing your down payment easier. If you want to get a brand new car, trading in the old one at a dealership will get you a lot more money to buy the new one. However, this means you will get a better loan term since you will borrow less for your new car.
Refinancing vs. Trading a Car
Refinancing allows you to locate a new lender that will either give you a lower interest rate or a longer loan term. They will both reduce your monthly payment and potentially make your loan a lot more affordable every month.
But refinancing to a longer term will eventually mean that you will pay more interest. Aside from being a good option, if you are satisfied with your current vehicle, lenders frequently have stringent requirements that you must meet.
Trading a car is an easier process. Immediately after you do research on your car’s value, you can go from one dealership to another to check out how much they can offer you for the car. The goal is to sell your car and then use the money earned to get a new one or pay off your current loan.
If you do have a current loan and after paying it off you have money left over, you can use it for the down payment on your new car. However, if you want to make things faster, you can just get a good loan deal for a new or used car.
How Car Refinancing Works
Refinancing is just the same as getting an auto loan. It is the better option out of the two, i.e., if you love your car and you want to reduce your monthly payment.
If there is an improvement in your credit, you have positive equity in your car. If you want to add a co-borrower, then this is the best way to go. The steps for doing this are outlined below.
- Put your Documents Together
You need to know the amount you owe for your car and your present credit score. Lenders will want to check out your financial status and discover more information about your car, including the model year and present mileage.
- Make Research on Lenders and Rates
Look for current auto refinance rates and the common requirements of lenders. Aside from good credit and solid finances, lenders specifically require your car to be under 10 model years old and have less than 100,000 miles on it. However, most lenders also have a minimum loan amount you will need to meet to be qualified.
- Apply With Different Lenders
This is more like a new auto loan. You need to apply for preapproval with banks, online lenders, and credit unions. This allows you to compare rates without affecting your credit score and gives you the opportunity to select the best refinance option.
- Confirm How You Will Pay Off the Loan
After you sign your loan documents, you need to make sure the lender either sends you the money to pay off your loan or makes the payment for you. You will also need to continue making payments until your present loan is covered.
How Trading In Your Car Works
Dealers love to make trading in your car part of purchasing a new car. But this is a separate procedure, and it should work out on its own. You can shop your traded-in at different dealers at a time, even if you decide not to purchase a new car with the dealer you have chosen. Check out the steps below to learn how to trade in your car.
- Make Research on the Value of your Car
Resources such as Kelley Blue Book and Edmunds list the average sale prices for a large variety of vehicles. Look for the value of your car so you can get a good deal on your trade-in.
- Check Your Loan
As we all know, every car depreciates in value. But in a case where you owe more than the value of your car, it can make trading difficult. Well, you can still sell it, but you may need to wind up because the cost of covering the rest of the loan from the trade is too low.
- Be Prepared to Negotiate
Like purchasing a car, you can work out your trade-in. If your car is still in good condition for its age and has a relatively low mileage, you may be able to get more out of the dealer.
- Give Out the Keys
After you have found the dealer you want to trade your car with, signed all the documents required, and gotten the title transferred, this is the next step to take. From this point, you will either need to pay off the loan on your car or use the money for a part of the down payment on your new car.