Should I Refinance or Trade In My Car? What To Know Before You Do Either
You have a dilemma. You’re pretty sure you can save money by refinancing your car loan, but you also kind of want a new car. Trading your car in will probably lead to more debt. But maybe a little bit of debt is worth it?
Weigh your options before making moves. This guide breaks down real costs and common scenarios to help you decide whether to refinance or trade in your car for something new.
- When you refinance a car loan, you’re replacing it with a new loan — one that hopefully has lower rates.
- Refinancing can make sense if you’ve improved your credit score. By contrast, trading in could be better if your car is costing you too much to maintain.
- Focus on how much overall interest you’ll pay — not just your monthly payment — when deciding whether you should refinance or trade in.
Refinance vs. trade in: a quick comparison
| Refinance | Trade in | |
|---|---|---|
| Goal | Keep your car and get a new auto loan | Get a different car and a new auto loan |
| Upfront costs | Usually low, as lenders generally roll fees into your loan | Could require a down payment |
| Time to complete | Quick approval decisions, but finalizing can take a couple of weeks | A couple of hours to a couple of days |
| Best for | People who want to keep their car and can qualify for a lower rate or monthly payment | People who can save money by buying a new car, through fewer repair bills or cheaper car insurance (for example) |
When you trade in, you’ll buy a different car with a new auto loan. You’ll also sell your current car in the process.
If you sell your current car to the dealer, they will take the trade-in value off of the total cost of your new car. Another option is selling it to a person (or private-party) and using the proceeds as a down payment.
Learn more by reading How Does Trading In a Car Work?
When you refinance, you’ll keep your car but get a new loan — an auto refinance loan.
When you apply for refinancing, the lender will run a hard credit pull. This could mean a lower rate if you’ve improved your credit score since buying your car. You could also reduce your monthly car payment by refinancing to a longer car loan.
Not sure if now’s the right time to refinance your car? We’ve got a guide for that.
Real world example: How to figure out if you should refinance or trade in your car
Consider this. You bought a decent used car a couple of years ago. Since then, you’ve improved your credit score from 670 to 780, bringing you from “good” to “very good”. You like your car, but it’s getting older. You might be in the market for something new, but only if it makes financial sense.
So, should you trade in and get a new auto loan, or keep your current car and refinance? Let’s look at the numbers. For this scenario, imagine that your current car loan has the rates and terms below.
- How much you originally borrowed: $20,000
- APR: 9.5%
- Monthly payment: $420
- Loan term: 60 months
- Time left on loan: 36 months
- How much you still owe: $12,797
- Trade-in value: $10,500
- Equity: -$2,297
The trade-in value ($10,500) of your current car is less than what you own on your auto loan ($12,797). That means you have an upside-down car loan and are underwater by $2,297.
The new car you’re thinking about costs $27,000. Knock $10,500 off of that due to your trade-in. The dealer also agreed to roll the $2,297 you owe on your old loan into your new loan. In total, you need to borrow $18,797 to buy the car.
Here’s how keeping your old car and refinancing would look, compared to trading in and buying a newer $27,000 car. Note that figures have been rounded to the nearest dollar.
| Refinance loan | Used car loan for trade-in | |
|---|---|---|
| Loan amount | $12,797 on current auto loan | $18,797 on a new auto loan |
| Loan rate | 6.9% | 8.5% |
| Loan terms | 36 months | 60 months |
| Monthly payment | $395 | $386 |
| Total interest paid | $1,407 | $4,342 |
| Vehicle status | Keep current car | Upgrade to a newer model |
In this scenario, your monthly car payment will go down whether you refinance or trade ($420 a month to $395 or $386 a month). Trading in gets you the lowest monthly payment, but that doesn’t mean the used car loan is cheaper.
If you trade in, you’d have to extend your loan term by another two years to keep your monthly payments about the same as a refinance loan. You’ll get a newer car and save a little each month, but you’ll pay $2,935 more interest (not including dealer fees).
Moral of the story: Don’t get hung up on monthly payments and instead use an auto loan calculator and auto refinance calculator to focus on overall interest.
You could save an average of $2,316 on your auto loan by raising your credit score from fair to very good according to a LendingTree study. Fair equals 580 to 669, and very good is 740 to 799.
Should I refinance my car or trade it in?
What to think about before refinancing your car
Might be a good idea if…
- You’ve improved your credit score since getting your original loan
- Interest rates in general have gone down
- You want to reduce your monthly payments by extending your loan term
- You want to remove a cosigner from your loan
Might be a bad idea if…
- You don’t qualify for a lower interest rate
- You still can’t afford your car payment, even if it’s lower
- Your current car loan has a prepayment penalty (but these aren’t very common)
- The auto refinance loan has high origination or doc fees
What to think about before trading in your car
Might be a good idea if…
- The car you’re buying costs less than what your current car is worth (you get to pocket the difference)
- The car you’re driving is on its last leg
- You can get a new car with better gas mileage
- You can’t afford the insurance on your current car
- You qualify for special promotional financing, like 0% APR
Might be a bad idea if…
- You’re buying a newer car but don’t really need to
- You can’t qualify for an affordable car loan rate
- The dealer is charging high fees or won’t offer you at least Kelley Blue Book (KBB) value
If you’re on the fence about trading in because of tariffs, you’re not alone. Almost three quarters (72%) of the car buyers we surveyed said that they were either buying early or waiting because of tariff uncertainty.
And what about those that have already bought a car in 2025? Well, an astounding 81% bought earlier than planned to get ahead of tariffs.
Get banks to compete for your business with LendingTree
LendingTree is a marketplace, built to save you money. In fact, we’ve been finding the best loans for Americans for more than 20 years. Our marketplace is the largest in the country, and it’s filled with lenders you know and trust. Here’s how it works:
- Tell us what you need. Answer basic questions about who you are and how much money you need. We’ll take care of the rest. It’s free, simple and secure.
- Shop your offers. We’ll send you offers from up to five trusted lenders. Compare your offers side by side to see which one will save you the most money.
- Get your money. Choose a lender and finalize your loan quickly. Whether you’re buying a new ride or ditching your current loan for a lower rate, we can help.
Compare auto refinance rates from top lenders in minutes
Frequently asked questions
Yes, you can usually trade in or sell a car that still has a loan. You will have to pay off your current loan, though, either out of pocket or by rolling the remaining balance into your new car loan.
Refinancing can extend your loan, but only if you choose a longer loan term than what you have left on your existing loan. For instance, if you have 36 months to go on your auto loan and refinance to a 60-month term, you’ll have an extra 24 months to pay off your car.
You might be able to refinance a car loan with bad credit, but it can be hard to find rates low enough to make it worth it. Still, it’s a path worth exploring. For instance, OpenRoad Lending accepts scores as low as 460 and might be a better deal than if you purchase from a buy here, pay here car lot.
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