If you are having trouble making your monthly car payments, you are probably looking for a way out–and you are not alone. According to Experian, the average new car payment is $725 in 2023. It’s all too easy to get behind on payments when expenses creep that high. Depending on your situation there are two options that may help you out of your current situation: refinancing your car loan and trading your car in. So which is the right option for you?
Car loan refinancing is when you take out a new car loan that will replace your existing car loan. This loan will hopefully have new terms such as a lower interest rate that will help to reduce your monthly payments and make your car loan more manageable. When you refinance, you are taking out a new loan and your new lender will pay off your old loan so that you only have one loan.
Car loan refinancing is beneficial for a few reasons:
You can secure a better car loan interest rate if your credit score has improved and/or market rates have decreased.
You can extend your repayment period so that you are paying less every month over a longer period of time.
You can shorten your repayment period so that you save money on interest over the life of the loan.
You can add or remove a cosigner.
You can get out of a bad relationship with your current lender.
Car loan refinancing is easy. When you refinance your car loan you should take the following steps:
Contact your current lender to determine what your current payoff amount is. It will be the remaining balance on the loan plus any taxes and fees you may be responsible for.
Use that number to shop around with different lenders to see what loans you have available to you. Traditional banks, online lenders, and credit unions all refinance auto loans so you will have a number of options.
Apply for a car refinance loan with a few different lenders and compare the terms, such as the interest rates and loan terms.
Select the loan that is right for you. After you sign the documents be sure to confirm that the new lender will pay off your existing loan. After your old loan is paid off the lien holder on your car’s title will be updated.
Refinancing a car loan is even easier if you use a company that specializes in car loan refinance. They can guide you through the process, help select lenders that will work for you, and help you with your applications. Companies that specialize in refinance will have relationships with lenders, and these relationships can mean more competitive rates for customers.
A car trade in is when you trade in your current car for a new car. If you are struggling with your payments, you can trade your car in for a new one that is less expensive and will have more manageable monthly payments.
If your current car has positive equity, meaning the vehicle is worth more than the balance on the loan, you can put that money towards your new vehicle. If you have negative equity, meaning that your vehicle is worth less than the balance on the loan, your debt will rollover into your new car loan.
Dealerships treat car trade-ins and new car purchases as if they are one transaction, but they are two separate transactions and should be treated as such. Your current car has value that you need to negotiate. When you trade in your car you should take the following steps:
Research your car’s value. Dealers will naturally try to low ball you if you come in off the street unprepared, so check out sites like Kelley Blue Book and Edmunds to get an idea of how much your car is worth. Your car’s value will be based on a number of factors such as the make, model, condition, and mileage.
Check the terms of your loan. Determine whether or not you have negative equity. Having negative equity may mean that you will have to take out a larger loan to pay off the debt.
Negotiate the trade in value. Be sure to bring your research with you to the dealership and fight for an increased value.
Sign on the dotted line and hand over the keys. When you agree on all of the terms you can sign all of the necessary paperwork and get the title transferred.
Get your new car. After you trade in your car you will purchase your new car as a separate transaction and separate negotiation.
Both of these options can help to ease your monthly car loan payments, but how do you know which option is right for you? It depends entirely on your situation, your loan, and your relationship with your car.
If you like your current vehicle and simply want a lower interest rate or a modified repayment schedule, car loan refinancing is a great option for you. You can stay in the car you love while getting out of a loan that you do not love.
If you aren’t loving your current vehicle and want to get a new set of wheels anyway, a car trade-in is probably a better option for you. You can essentially start over, even though you will be required to pay for any negative equity that may have rolled over from your first loan.
If refinancing your car loan and trading your car in both feel like big steps that you don’t want to make just yet, there are a few other options that you can try.
Ask for a deferral. If you are experiencing financial trouble your lender may allow you to defer your payments for up to three months. You will still have to pay interest during this time but it can give you some breathing room in the meantime.
Request a modification. Some lenders will allow you to modify your loan repayment period. Many lenders will not allow this but it’s worth asking.
The right move for you will depend on your car, your loan, and your financial situation. But if car loan refinancing feels right for you, contact Auto Approve today! You can get a free quote in minutes and it could save you a lot of money.