It's easy to wonder whether you should refinance your car or trade it in if your car payments are stretching you thin. The answer will always depend on your particular situation. However, you should be able to figure out whether trading in or refinancing your car is a better option after examining the following factors.
Is Your Car Too Expensive for Your Finances?
Sadly, car salespeople aren't interested in your full financial picture. They only want to make a car sale. Struggling to make your car payment is often a warning sign that you bought too much car for your financial situation. To determine whether this is true in your case, you should ask yourself whether you obtained a decent rate on your current car loan and if your car loan term, or the number of months you'll repay the loan, is reasonable.
Answering yes to both questions means refinancing probably won't improve your financial situation very much. Instead, it may be time to trade in your expensive car and get a more reasonable vehicle for your budget.
Has Your Credit Improved Since Your Original Car Loan?
Your credit score plays a large role in the interest rate you were approved for when you took out your car loan. Since your credit score is constantly changing based on your financial actions, your score may have improved since you took out your original car loan. Refinancing your car may be the best option for you if your car seems reasonable for your income and you have improved your credit score since you originally financed your car. Additionally, if your original car loan just had a horrible interest rate because you didn't shop around for the best rate, you may be able to find a better interest rate even if your credit score has stayed the same or slightly decreased.
Securing a lower interest rate can help you save on your monthly payments, allowing you to get some much needed wiggle room in your budget. However, if your recent financial actions have lowered your credit score significantly, your only option may be to trade your car in for a less expensive model.
Is Your Car on Its Last Leg?
Sometimes your car simply won't last another 10,000 miles. If your mechanic has told you your car is on its last leg, you may not be able to refinance your car since many lenders won't consider refinancing an older vehicle. Trading in your car for a more reliable vehicle may be your best bet when faced with this dilemma. Your trade in may not hold much value at the dealership, but getting some money out of your car can be a better option than paying someone to tow a disabled vehicle after it no longer runs.
Refinance Your Car or Trade It In?
Your answers to the above questions may have made it clear it is time to refinance your car. If that's the case, make sure you shop around to find the best overall auto refinance loan possible for your situation. Alternatively, if it is clear you should trade your car in, make sure you shop around for financing before heading to the dealership to make sure you get the best financing deal possible on your next car. Regardless of which option you choose, make sure you don't make the same mistake twice. Buy a reasonable car that you can afford and you won't have to debate if you should refinance your car or trade it in ever again.