Should You Refinance or Trade In Your Car?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - July 2, 2020

If you need to refinance your auto loan due to initial high interest rates, make sure both your situation and the vehicle you're refinancing meet the lender’s qualifications. If they don't, you may end up searching for a dealership to trade in your car to instead.

Refinancing Your Car Loan to Save Money

Refinancing is generally done when you need to save money on your monthly payment. You can do this in one of two ways: by lowering your interest rate, or by stretching out your loan term. If you're looking to save money overall, lowering your interest rate is the way to go – if you qualify. This way you save money in your monthly payment, and over the course of your loan.

Stretching out your loan term helps you out in the short term if you need to save money each month. But, don't expect to see overall savings if you don’t qualify for a lower interest rate. You end up paying more in the long run by extending your loan term with the same interest rate. The longer you owe on your loan, the more money you spend in interest charges down the road.

You could save the most cash by qualifying for a longer loan term and a lower interest rate. However, it's in your best interest to not extend your loan if you don't have to. Now that you know how refinancing can save you money, it's time to see if you qualify.

Qualifying for Refinancing

Just like when you're signing a loan contract for the first time, there are certain requirements you need to meet in order to refinance your vehicle. The most common requirements for you, personally, are based on your credit score (naturally).

Refinancing is typically for people with good credit. But, if you took out your loan as a bad credit borrower, and your score has improved over the past year – the minimum length of time you have to have had your car for to refinance – you may still be able to qualify. If you haven't had your vehicle for at least a year, you can work on improving your credit while you wait; once a year has passed, then you can look into refinancing.

Your car has to qualify for refinancing, too. Lender requirements for a vehicle vary, and your car has to fit into the acceptable age and mileage limits set by the lender you're working with. There must also be equity (or at least no negative equity) in your vehicle, meaning that its value must be equal to or greater than what you currently owe on the auto loan.

Additionally, you have to be current on your loan payments, you can't use refinancing to help you catch up if you're already behind. Finally, the loan amount you're looking to refinance must also be acceptable to the lender. Remember, not all lenders have the same requirements for refinancing, so you may have to shop around for a good fit to your situation.

Trading In Your Car to Save Money

Maybe your situation or car doesn't qualify for refinancing, but the fact remains that you just need a lower monthly payment. If this is the case for you, trading in your vehicle for something more affordable may be your solution. Even if your credit still isn't the best, there are subprime lenders available throughout the nation that can help borrowers get the auto loans they need when they're struggling through credit challenges.

What's more, if there's equity in your car, you can typically turn that value into all or part of a down payment. This usually means you don't have to come in with cash, or at least with as much cash, for a down payment.

If you think this might be the way to go for you, make sure you know where your credit stands, and what the estimated value of your current vehicle is. You can get your credit score online in a number of ways, while you can request your credit reports for free at www.annualcreditreport.com.

After that, you can use online resources such as Kelley Blue Book or NADAguides to get an estimated value for your car. You should also contact your current lender to get a 10-day payoff amount to make sure there's equity in your vehicle.

Ready to Refinance or Trade In Your Car?

If the time is right and you meet all the outlined qualifications for the lender you want to work with, then we want to help you on your refinancing journey. You can check out our refinancing partner here. But, if you decide refinancing isn't the right choice for you, that's OK.

Here at CarsDirect, we can also help you find a dealership in your area if trading in your car is the way to go. When you fill out our free auto loan request form, we can match you with a local special finance dealer that's signed up with lending resources ready to work with people in many different credit situations, including bad credit, no credit, and even bankruptcy.

Don't wait to get into an affordable, reliable vehicle that's easier on your pocketbook. Get the process of finding your next car loan started right now!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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