Deciding between refinancing or trading in your car isn’t always a straightforward decision. Your future financial goals, current credit conditions, and the value of your vehicle all play an important role in determining the best course of action.
In this article, we at the Guides Auto Team examine what goes into refinancing a car loan and trading a vehicle. We discuss when which option makes the most sense. Our team also researched and evaluated the loan providers Best Auto Refinance Rates to make your refinancing experience easier.
The basics of refinancing a car loan
When you refinance your car loan, you take out a new loan on better terms. The most common reason for refinancing is that the borrower has a better credit rating and general financial situation than when the original loan was secured. Refinancing usually results in a better interest rate and lower monthly car payments. You can also Pay off your car loan faster when you refinance.
The car loan refinance process begins with figuring out how much you owe on your current car loan. From there, your best bet is to compare interest rates, loan terms, and fees from different lenders. Once you apply for and qualify for new credit, your new lender pays off the current lender and becomes the title lien holder. You then start paying the new car loan.
Refinance when you’re upside down
Flipping your car loan means you owe more on your car loan than the vehicle is worth. In this situation, your car will depreciate faster than you pay off the loan. Lenders are often reluctant to lend more money than a car is worth, so refinancing is difficult when you’re upside down.
However, lenders might be open to refinancing under certain circumstances. The loan-to-value (LTV) ratio is particularly important here. To get your LTV, divide your loan balance by the value of your car, then multiply by 100. If your LTV is over 100%, you’re upside down. As long as your LTV is below 125%, you have a chance of refinancing. If you have fair to good credit, your chances of refinancing during the headstand are better.
The basics of trading a car
Swapping your car for a cheaper model is another way to earn lower monthly payments. This is not always easy as merchants offer different trade-in values. You may need to look for the trader that will give you the trade value that suits your needs.
In some cases, you can get more for your old car by selling it to a private buyer. You can use the proceeds of a private sale to fund a down payment on a new car that better suits your current budget.
Trade a car when you are upside down
When you have negative equity in your car, trading comes with some challenges. You can either pay off your debt in cash or convert it into a new car loan. The latter option means you’re upside down as soon as you leave the dealership, which is far from ideal. Good credit can help the situation, but you’ll probably still end up with an expensive car loan if you’re upside down.
Factors Influencing Auto Refinance Rates
Auto lenders consider a few specific factors when determining if you qualify for refinance. Here are the key metrics driving lender decisions:
- credit-worthiness: If your credit report shows you have good to excellent credit, most lenders will offer lower interest rates. Bad credit complicates things, although you can explore the world of credit car loans with bad credit.
- Debt to Income Ratio: A debt-to-income ratio of 50% or less, meaning you’re paying no more than 50% of your monthly income towards debt payments, can help you qualify for a refinance.
- loan-to-value ratio: As previously mentioned, an LTV of 100% or less makes qualifying for an auto loan refinance a lot easier.
- Current credit requirements: Some lenders require an existing loan to have 24 to 36 months remaining in order to be refinanced. You may not be able to refinance a loan until it has been open for several months.
Conclusion: Trade in or refinance the car?
The decision between refinancing or trading your car depends on your financial goals and current loan conditions. If you’re looking to save money by lowering your monthly payments, it’s best to research and find refinancing options best car loan rates. From there you can research the value of your current vehicle and your trade-in options. You may find a car that suits your needs that comes with lower loan rates.
Our top picks for car loan refinance
There’s no shortage of options when it comes to lenders, which is what makes refinance comparison companies so valuable. Two of our top picks to help you get the best auto refinance deal are myAutoloan and Auto Approve.
MyAutoloan: Best Low Rate Option
myAutoloan is an online company that has been in business for almost 20 years and allows you to compare multiple lenders when you apply. myAutoloan refinancing rates start at 1.99% for 36 months and 2.24% for 37 to 60 months. The company has one Rating A+ on the Better Business Bureau (BBB) website and a 4.2 out of 5.0 stars on Trustpilot.
Continue reading: myAutoloan review
Automatic approval: top choice for refinancing
Auto Approve offers refinance loans with interest rates starting at 2.94%. The company is our top choice for auto refinancing because they provide each client with a specialist to guide them through the entire process. You even get assistance with transferring the vehicle title.
Automatic approval has one Rating A+ and 4.4 out of 5.0 stars from customer reviews on the BBB website. The company has an excellent rating on Trustpilot 4.7 out of 5.0 stars based on more than 6,000 customer reviews.
Continue reading: Approve review automatically
Because consumers rely on us to provide objective and accurate information, we have developed a comprehensive rating system to formulate our ranking of the best car loan companies. We collected data on dozens of loan originators to rank the companies based on a variety of ranking factors. The end result was an overall rating for each vendor, with the companies with the most points topping the list.
Here are the factors our reviews take into account:
- Reputation (30% of total score): Our research team considered industry expert reviews and each lender’s fiscal year to generate this score.
- Availability (20% of total score): Companies that cover a variety of life circumstances are more likely to meet borrowers’ needs.
- Loan details (15% of total score): We considered the types of loans, terms, and loan amounts available from each lender to determine this score.
- Prizes (25% of total points): Auto loan providers with low APRs scored the highest in this category. Available discounts have also been taken into account.
- Customer Experience (10% of total score): This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness and helpfulness of each lender’s customer service team.
*Data correct at time of publication.