Financial goals weigh heavily when deciding to refinance or trade in your car. You could change your interest rate or lower your monthly payments with either choice. Yet, you may be driven by other reasons when choosing between the two. Whether you want a more budget-friendly car or a lower rate, you may wonder whether you should refinance your car or trade it in.
What is car loan refinancing?
Typically, when you refinance your car loan, you take out a new loan with better terms. You go through a similar process when refinancing as you did with your original loan. You complete an application, and the lender pulls your credit. If your application is approved, the lender pays off your old loan, and you take out a new one.
Before refinancing, take a close look at the terms of your loan and consider your current financial condition. An improved credit score may help you land better terms.
Benefits of car loan refinancing
Refinancing a car loan can have several benefits for car owners, including lower interest rates, lower monthly payments, and the ability to pay off the loan faster.
Many people look into refinancing their car loan to potentially save money. A lower interest rate can lead to significant savings over the life of the loan, as it reduces the amount of interest paid on the loan.
Lowering your interest rate can help you save money in the long run.. Moreover, refinancing car loans can also lower your monthly payments which can help to ease your financial burden and provide you with some financial flexibility.
In some cases, you may even be able to pay off your car loan faster with refinance – since the lower interest rate and reduced monthly payments will allow you to allocate more money to your principal balance. This is particularly useful for those who are trying to get out of debt faster.
Keep in mind that it’s not guaranteed that you’ll be able to secure a lower monthly payment or interest rate when you’re refinancing your car loan, but if you can, it may be beneficial to your finances.
When to consider refinancing your car loan
Generally speaking, if interest rates have dropped since you took out the loan or if your credit score has improved, you may be eligible for a more favorable interest rate when refinancing. Additionally, if your financial situation has changed and you are able to make larger payments—or pay off the loan sooner—you can save money on interest as well. Before refinancing, it is important to calculate the total cost of the loan and compare that to potential savings before making a decision.
It is also important to weigh the cost of refinancing your existing loan. This can include early termination fees, processing fees, and other charges that may be associated with a new loan. If, after considering all these factors, you think that refinancing is the best option for you, it is advisable to shop around for lenders and compare offers before making a decision.
What does it mean to trade in a car?
You trade in your vehicle with the dealer to get a new one. The dealer agrees to give you credit for your existing vehicle. You would then pay off your current loan, and whatever is left can be used towards the purchase of the new car. .
When trading in a car, you should know how much you owe for the vehicle and its worth. You have positive equity if the car is worth more than you owe — the amount above what you owe offsets the purchase price of your new vehicle.
Benefits of trading in your car
When you trade in your car, the value of your old vehicle can be applied toward the new car purchase. This can have a positive effect on your monthly payments, which can be lowered significantly. This can be a great way to save money on taxes and get a better deal on your new car purchase.
Another significant benefit of trading in your car is the convenience factor. Selling a car privately can be a long and arduous process that can involve advertising, haggling with buyers, and making repairs. When you trade in your car, the dealership takes care of everything, from the paperwork to the repairs, saving you time and hassle.
Moreover, trading in your car can also make it easier to negotiate a better deal on your new car purchase.
When to consider trading your car in
People often trade in their vehicles to get newer cars. You may trade a car for something cheaper or with better gas mileage. Or you may consider trading in your vehicle for a newer model with better features or more room. When your vehicle is older and you want to avoid getting stuck with costly repairs, trading your vehicle in could save you money.
A new or growing family may need a larger vehicle. If you must commute a long distance for a new job, you may want a car with better gas mileage.
Before trading in your car, it is important to research the current market value for similar vehicles so you are aware of how much you can expect to get for yours.
Refinancing your car vs trading in
Refinancing your car is also a good choice if you’re committed to paying off your car in its entirety but need some short-term relief. However, refinancing also means possibly extending the length of your loan, which could mean you end up paying more interest over time.
On the other hand, trading your car in for a new one involves getting a new loan for a different vehicle and using the trade-in value of your current car to reduce the cost. This can be a good option if you’re looking for a new car with better gas mileage or advanced safety features.
Additionally, trading in your car means you could eliminate any negative equity you may owe on your current loan. However, trading in your car also means assuming a new loan, which could mean higher monthly payments or a longer repayment period.
In the end, which option is best for you will depend on your specific financial situation and goals. It’s important to weigh the pros and cons of each option, consult with a reputable car dealer or financial advisor, and make a decision that’s best for you and your budget.
Look to your goals when deciding to refinance or trade-in your car consider your personal and financial goals when choosing between whether you should refinance or trade in your car. How much you owe and the vehicle’s value plays a significant role in your decision.
Can you trade in a refinanced car?
You can trade in a refinanced car. But if you owe more on your vehicle than it’s worth, you may have to pay the dealer for this difference.
Can I refinance my car with bad credit?
While you can refinance your car if you have bad credit, your options could be limited. If your credit score has improved since you bought the car, you may get a better interest rate and lower payments than now.
How long should I wait to refinance my car?
This is entirely up to you, the lender and how much you owe on your car loan. You will also want to consider interest rates and car prices.