Making the decision to trade in your car or refinance your auto loan is a big one. However, there are several things you’ll want to consider before making a decision. In this article, we’ll explore some key factors you should examine when choosing.

How Trade-Ins Work

When you trade in your car, you’re essentially selling it back to the dealership (or whoever you’re trading it in to). They will then give you a certain amount of money to purchase your new car. A major advantage of this is that it can save you time and hassle in trying to sell your car on your own.

Another benefit is that you might be able to save on taxes. For example, when using your trade-in toward the purchase of a new vehicle, your state might tax you on the full value of the new car or the difference of the new car value minus the trade-in value. 

If it’s the latter, you’ll be able to lower your taxes and overall price tag. And according to Consumer Reports, the majority of states do tax the difference.

And finally, if you still owe money on your trade-in, the dealership might be able to roll that amount into your new loan. Just keep in mind that you’ll be paying interest on that amount over the life of your new loan.

When you trade in your car, keep the following in mind. Private sales usually result in more money than trading it in to a dealership. Dealerships need to make a profit off your vehicle, so they typically give less money than the car is worth.

You’ll also be subject to the laws of supply and demand. If the dealership is flooded with trade-ins of the same make and model as your car, they might not give you as much money as it’s actually worth. However, this could work in your favor in some cases if the dealership is desperate for your type of car.

Refinancing Your Auto Loan

When you refinance your car loan, you’re essentially taking out a new loan with a new interest rate. A great benefit of this is lowering your monthly payments, saving you money in the long run. 

And with 47 percent of Americans extending their car ownership beyond their original forecast, according to Deloitte, you might find yourself in this position. However, remember the following when considering auto loan refinancing.

If you have good credit, you might be able to qualify for a lower interest rate than what you’re currently paying. This means you could save money on your monthly payments. However, if you have bad credit, you might not be able to qualify for a better interest rate, so refinancing might not be your best option. 

Although, in some cases, you could still get better loan terms or lower your payment. You can use a refinance car loan calculator to help you figure out if refinancing makes sense for you.

Also, when you refinance your loan, you’ll likely have to pay some fees to do so. These fees can include an application fee, an origination fee and a prepayment penalty. Make sure you understand all the fees associated with refinancing before you make a decision, and shop around to find the best deal.

Lastly, you’ll want to consider the length of your loan when deciding whether or not to refinance. If you have a longer loan term, you might not save as much money in the long run by refinancing. On the other hand, if you have a shorter loan term, you could save quite a bit of money by refinancing.

Which Option Is Best?

There’s no right or wrong answer when it comes to trading in your car or refinancing your auto loan. It really depends on your individual situation and what makes sense for you. Here are some scenarios to consider.

You might want to refinance your car loan if you:

• Are happy with your car and would like to keep it but want to lower your monthly payments
• Have good credit and can qualify for a lower-interest rate
• Don’t mind paying fees to refinance

You might want to trade in your car if you:

• Are looking to get rid of your current car and upgrade to a new one
• Would like to save time and hassle by not having to sell your car privately
• Are okay with getting less money for your car than it’s worth

If you’re still unsure which option is best for you, we recommend reaching out to see what we can do to help you decide.