Many people think about getting a car, either a new or used one. However, one of the things that makes it hard for some people is the monthly payment they have to pay.
Trading in or refinancing are the best options for people looking to either get a new car or change their car and have lower monthly payments. However, before deciding which one is the best for them, they need to understand the differences and see which one favors them more.
What Is A Car Refinance Loan?
A car refinance loan is a new loan that someone takes to replace their existing car loan. The new loan typically has better terms like a lower interest rate or a better loan term.
The main reason why people take a car refinance loan is if they get a better credit score or if car loan interest rates reduce across the market. Other people can remove their spouse’s name from the loan after a separation or divorce.
Unlike normal car loans, a person’s credit score does not determine if they get a car refinance loan or not. That is because some lenders work with people who have bad credit but give less competitive terms.
How Car Loan Refinancing Works
Some of the steps that a borrower can follow to qualify for a car loan refinance include:
Understand how much they owe on their current auto loan- Borrowers can get a payoff statement from their current lenders to know how much they require to close their current auto loans. Alternatively, they can find the payoff amounts on their online account or monthly statement.
Shop around and compare different lenders to see which car loan refinance is best for them: Borrowers should compare aspects like loan terms, interest loans, and any additional fees. Online platforms like Lantern by SoFi provide users with comparisons of auto refinancing rates from top lenders.
Close on the refinance loan: After signing the paperwork, the new lender sends the old lender a payoff check, and the title lien holder now shows the new lender. After around a month, the borrower is expected to make their first payment on the new loan.
How Trading In A Car Works
Trading in a car means taking an old car to a car dealer to get a new one. The first thing a car owner should do is assess the value of their vehicle because car dealerships will try to get it at the lowest possible price.
To get the highest price, car owners should have different dealerships evaluate their cars. Once the dealer and car owner agree, the dealer subtracts the cost of the old car from the one of the new car, and the car owner can pay the balance with an auto loan or in cash.
Car Loan Refinancing Vs. Trading In Your Car
While both are good options, there are times when a car loan refinance is better than a car trade-in and vice versa.
If the car owner is happy with their car but not their car loan, the best option is a refinance loan, especially if they have an improved credit score.
However, if they are happy with the loan but want to downsize their monthly payment, they could trade in their car for a smaller size or lower-priced model. However, if a dealer does not give a good trade-in value, the car owner may find a better deal by selling the car to an individual buyer.
The choice between trading in a car and getting a refinance loan is not a one-size-fits-all deal. Car owners must consider what their goal is and what benefits they will get from either.