Should I Refinance or Trade In My Car? - Millstream Area Credit Union
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February 08, 2022

Should I Refinance or Trade In My Car?


Should I Refinance or Trade In My Car?

If your car loan is eating up your earnings each month, you may wonder if you should refinance your loan or trade in your car so you can pay less to stay on the highway. 

But which choice is right for you, and why? 

Refinance if you like your car and want to keep it—sometimes it’s as simple as that. Trade your car in if you are tired of it or it no longer suits your needs. A growing family may need a larger vehicle, for instance, as no one wants to feel like they’re squeezing into a clown car.

If your credit score has improved, your income has increased, or car loan interest rates have dropped since you secured your existing loan, you may benefit from refinancing.

Through refinancing, you can lower your monthly car payment by locking in a lower APR rate or altering the loan term. Be aware, however, that lengthening the term to pay less each month means paying more for the car in the long run.

Since the bulk of interest is paid at the beginning of the loan term, you can save the most money by refinancing early. Calculate your potential savings by using a loan calculator to compare your current monthly payment with the amount you would pay at the rate offered by your bank or credit union through refinancing.

If your car is too old or has too many miles on it, your vehicle may not qualify for refinancing—which is a great reason to trade it for a different vehicle. 

Older cars require more repairs anyway, and there is no benefit in keeping a car that threatens to bleed your bank account dry on a regular basis. By trading your vehicle, you can secure a lower monthly payment and eliminate costly ongoing repairs, too. 

Before trading your vehicle, you need to know your car’s worth so you can estimate how its value will offset the cost of the vehicle you’re purchasing. Get an estimate quickly and easily through a site like Kelley Blue Book

In the end, the longer you hang onto your car, the more it will depreciate in value. Trading it earlier in the loan term while it retains more value means paying less for a new vehicle when the deal is done. 

Be sure to take all associated costs into account when refinancing or trading your vehicle. When you still owe money on the car you are refinancing or trading in, your new lender pays off the existing loan before opening a new one. This may trigger a prepayment penalty, depending on the terms of your old loan. To account for other costs, use a site like ClearPoint’s Car Cost Comparison Calculator to compare insurance premiums, maintenance costs, and gas mileage for your current vehicle and the one you’re buying. 

Finally, if you secured your current loan through a dealership, consider refinancing or trading in your vehicle simply because dealerships specialize in selling cars and not in looking out for the financial health of customers. Credit unions like Millstream Area Credit Union are uniquely positioned to offer beneficial loans to their members because credit unions are member-owned. It is therefore in the best interest of credit unions to offer members loans that take their long-term financial needs into account. 

If you are trying to decide how to reduce your monthly car loan payment, we can pre-qualify you for refinancing or pre-approve you for the purchase of a new car with a trade-in. Reach out and let us know what you need. We are happy to help—and honored to be your credit union.


Cut down your monthly car loan payment by getting pre-qualified for an auto loan refinance or pre-approved for a new car loan/trade-in today with help from Millstream Area Credit Union.

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