Refinancing your car loan can lower your interest rate and monthly payment — but it’s not always the best move. In many cases, trading in your vehicle and replacing it with a better-structured loan on a different vehicle can save more money, reduce risk, and improve your financial situation faster.

This guide explains when refinancing makes sense — and when trading in is the smarter option.

What Is Car Loan Refinancing?

Refinancing replaces your current car loan with a new one, usually to:

Lower your interest rate

Reduce your monthly payment

Extend your loan term

Switch lenders

This can help — but refinancing doesn’t fix everything.

Why Refinancing May NOT Be the Right Move

1. Your Interest Rate May Not Improve Enough

If your credit hasn’t improved significantly since your original loan, your new rate may be similar — or even higher.

This means:

Little or no monthly savings

Paying more interest over time

Restarting the loan clock

Refinancing only works well when your credit profile has clearly improved.

2. You May Still Owe More Than the Vehicle Is Worth

Many borrowers are “upside-down” on their loan.

Example:

You owe: $28,000

Vehicle value: $19,000

Refinancing doesn’t eliminate the negative equity — it just moves it to a new loan.

Trading in can sometimes restructure this more effectively.

3. Extending the Loan Term Can Cost More Long-Term

Lower monthly payments often come from extending the term.

Example:

Current loan: 3 years remaining

Refinanced loan: 6 years

You may pay significantly more interest overall.

4. Your Vehicle May Be Nearing High Repair Costs

If your vehicle is approaching:

150,000+ km

Major maintenance milestones

Expensive repairs

Refinancing keeps you tied to a depreciating asset that may soon cost more in repairs than it’s worth.

Trading into a newer, more reliable vehicle may reduce long-term costs.

When Trading In Your Vehicle Makes More Sense

Trading in allows you to replace both:

The vehicle

The loan structure

This creates opportunities refinancing cannot.

1. Lower Total Cost of Ownership

A newer vehicle may offer:

Lower interest rates

Better reliability

Lower repair costs

Better fuel efficiency

This can reduce your total financial burden.

2. Access to Better Loan Structures

When you trade in, lenders evaluate:

Your current income

Your credit today

The new vehicle’s value and risk

This can result in:

Lower rates

Better terms

More flexible approval options

3. Opportunity to Reset Your Financial Position

Instead of trying to “fix” an old loan, trading in lets you move forward with a better foundation.

Many borrowers improve their situation by:

Lowering payments

Reducing risk

Improving reliability

Rebuilding credit more effectively

4. Escape a High-Interest Loan Faster

If your current loan has:

18%–29% interest

Long remaining term

High monthly payments

Trading in may allow you to replace it with a more manageable structure.

Real-World Example

Refinancing Option:

Remaining balance: $24,000

New rate: 17%

New term: 72 months

Payment: $510/month

Total paid: $36,720

Trade-In Option:

Negative equity rolled into newer vehicle

New rate: 12%

New vehicle with better reliability

Payment: $498/month

Lower risk of major repairs

Better long-term stability

Even similar payments can create a much stronger financial position.

When Refinancing DOES Make Sense

Refinancing may be a good option if:

Your credit score has improved significantly

Your vehicle has strong resale value

Your interest rate can drop substantially

Your vehicle is reliable long-term

You are not heavily upside-down

When Trading In Is Usually the Better Choice

Trading in may be smarter if:

Your current rate is very high

Your vehicle has depreciated heavily

You owe more than the vehicle is worth

Your vehicle is aging or unreliable

You want to improve your overall financial position

The Bottom Line

Refinancing can help in some situations — but it often only adjusts the loan, not the underlying problem.

Trading in allows you to:

Replace a high-risk vehicle

Access better financing opportunities

Improve reliability

Reduce long-term financial risk

For many Ontario drivers, trading in provides a cleaner, more effective path forward than refinancing alone.