If you’re considering buying a new car but currently have an existing auto loan, you may wonder, “If I refinance a car, can I trade it in?” You can typically trade in a car after refinancing, but that doesn’t always mean you should.
Refinancing an auto loan may qualify you for a lower interest rate, which means lower monthly payments. However, refinancing doesn’t typically reduce your loan amount, so doing it before a trade-in offers little value.
If you need to change cars after refinancing, doing so shouldn’t stop you from trading in your vehicle to purchase a new one. Learn when you should and shouldn’t trade in your vehicle, alternative options available, and steps to take to trade in after refinancing.
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Can I Trade In My Car after Refinancing?
You can usually trade in your vehicle after refinancing. Refinancing an auto loan moves your loan to a new lender, frequently offering better financing rates. When you refinance a car, the new lender pays off the previous loan in full, leaving you with just one loan.
If you decide to trade in your vehicle shortly after, the lender for the new car will pay off your refinancing lender rather than the previous one.
Should You Refinance or Trade in Your Car?
Whether you should refinance or trade in your vehicle depends on many factors, including how much you owe, your current interest rate, and the value of your vehicle.
The primary goal of refinancing a vehicle is to qualify for a better interest rate, which can lower your monthly payments. A few key reasons to refinance rather than trade in your car include:
- You want to keep your current vehicle.
- Your credit score is higher than when you first purchased your vehicle.
- You have a higher down payment available than when you first purchased.
The most common reason to trade in a vehicle is to purchase another one. Many dealerships are willing to deduct the offer amount of your trade-in from the purchase price of your new vehicle.
Of course, if you have an existing auto loan, the funds will first go toward paying that off. Anything left over, however, is yours to keep and typically comes off the new vehicle’s price. A few reasons to trade in your current vehicle include:
- You want a new vehicle make or model.
- You want a vehicle that’s larger or with different features.
- You found a great deal on a new car purchase.
Refinancing your vehicle shouldn’t prevent you from trading it in for a new car purchase. The important thing to remember is that it may not be the best decision to intentionally refinance to then trade in a vehicle since this strategy offers little value.
Reasons to Trade In Your Car after Refinancing
It’s essential to consider your financial situation and vehicle needs when determining if you should trade in your vehicle after refinancing. Here are a few reasons why you may consider trading in your vehicle after you refinance:
- You have positive equity: Positive equity refers to owing less on your vehicle than it’s worth. You may decide to trade in your vehicle after refinancing and collect the positive equity, which can reduce the cost of buying a new vehicle.
- You want to roll over negative equity: Having negative equity in your vehicle means you owe more than it’s worth. Negative equity can limit your refinance and trade-in options, but some dealers may allow you to roll your existing loan amount into a new car purchase.
Can I Refinance My Car to Get a New Vehicle?
Refinancing a car doesn’t get you a new vehicle. Refinancing a car loan means reducing your payments while keeping your existing car. A trade-in may be a better option if you want a new vehicle.
However, if you have recently refinanced your current vehicle, it shouldn’t stop you from trading in your car for a new one.
When you refinance with a different lender, they’ll typically check your credit report, which may impact your score.
Another lender may recheck your credit report after applying for a new vehicle with a trade-in. Too many inquiries can reduce your overall credit score, making qualifying for a reasonable interest rate difficult.
Generally, price shopping multiple lenders within 14–45 days won’t affect your credit score as much, but refinancing and buying a new car a few months apart could lead to a decline in your score.
Can I Trade In My Car If I Owe Money?
You can trade in your existing car even if you owe a lender. However, you want to ensure that the trade-in offer appropriately covers the payoff quote for your existing vehicle. Otherwise, you may have to pay the difference between your current loan balance and the trade-in amount out of pocket.
Some dealerships may allow you to roll any leftover balance into a new car loan, but this usually increases your monthly payments. Timing your trade-in helps you avoid rolling negative equity into a new car purchase.
How to Trade In a Vehicle after Refinancing
The process of trading in a vehicle after refinancing is similar to the steps you’d take if you hadn’t recently refinanced. You can follow these steps to trade in your vehicle:
Determine the Value of Your Vehicle
Before deciding if it makes sense to trade in your vehicle, you’ll want to determine its worth. A good starting point is to see how much vehicles of a similar make, model, and mileage are selling for in your area.
Remember, there is usually a difference in selling price between used cars sold at a dealership and those sold through a private sale. You can research the value of your vehicle using Car and Driver’s car value estimator.
Find Out What You Owe
You’ll also need to know what you owe on your original car loan. You can find this information from the dealer or request a payoff quote from your lender.
Some dealers may also charge prepayment penalties, which are fees for paying off your loan early. You’ll want to calculate any prepayment fees when determining your vehicle’s trade-in value.
Request Trade-in Offers
Determining what dealerships will pay you for your used vehicle is also necessary. A car’s trade-in value does not always equal the payoff quote for your car loan. You can always negotiate with the dealer to get the best trade-in offer.
Providing the lender with information, like a KBB report, can help with negotiations. Shopping around and obtaining trade-in quotes from multiple dealers helps you secure the best deal.
Alternatives to a Trade-in
You may have other options available if you don’t want to trade in your vehicle, including:
Car Refinance Loan
You can always refinance your auto loan without trading the vehicle in for a new one. If you’re happy with the make and model of your current vehicle, you can keep it and apply for a refinancing loan. Refinancing a vehicle may allow you to qualify for a lower interest rate, especially if you have a better credit score than when you initially applied for your vehicle loan.
You can price shop for the best interest rates by contacting numerous dealers. Also, try various banking institutions and credit unions to secure the best rates.
Rollover Loan
A rollover loan is when a dealer promises to absorb your existing auto loan, regardless of its value. The trade-in price is deducted from the cost of your new car, and anything left over on the existing loan is then rolled into your new monthly payment.
A rollover loan could result in higher payments. It’s also important to note that rolling over a loan can lead to negative equity on your new car, meaning you owe more than it’s worth. Making additional monthly payments toward your balance can help offset the negative equity and bring you into positive conditions faster.
Payment Deferment
A deferment may be an option if you’re considering refinancing or trading in your vehicle because you have missed a few payments. Some lenders allow borrowers to defer their current monthly car payment a month or two, giving them time to catch up on missed payments.
Loan Modification Programs
Some dealers offer loan modification financial products, which can help you catch up on missed payments. A loan modification usually works by extending the length of your financing agreement, which stretches out your remaining loan balance over a longer period.
This typically leads to lower monthly payments, making it easier to catch up. A loan modification can also allow you to move your missed payments to the end of the life of the loan. A loan modification program may be a good option for borrowers who won’t likely qualify for a better deal through financing because of poor credit or no access to a down payment.
Private Sale
If you no longer want your current vehicle, you also have the option to sell it through a private sale. With this course of action, you may have more opportunities to negotiate. However, remember that you’ll have to manage tasks like title transfer and taxes if you handle the sale of your current car yourself.
Make Biweekly Payments
Making biweekly payments toward your original loan allows you to pay down your balance faster. Biweekly payments may also make it easier to remember payment due dates if you follow your paycheck schedule. Making these extra payments puts more toward the principal and can reduce how much you pay in interest over the life of the loan.
Refinancing a car shouldn’t stop you from trading it in for a new vehicle. Refinancing and vehicle trade-in are two options to control your monthly car loan payments. Compare the benefits of each to decide which option is best for you.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
