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Trading in a car can help you reap value from your current car as you move on to your next vehicle. This article takes you step by step through the process, from figuring out the vehicle’s value to sealing the deal. Plus, it also shares the pros and cons of trade-ins, red flags at dealerships, alternatives to trading in a car, and more.

Deciding Whether to Trade in Your Car

Deciding whether to trade in your car is largely a personal decision. Many factors can play into your decision about whether this is the right time to get a new vehicle.

When deciding whether you can afford a new car and shopping for a car loan, consider:

•  The purchase prices of cars you like

•  How much you owe on your current vehicle

•  How much appraised value your trade-in would have

•  How much cash, if any, you can offer as a down payment

•  Additional costs, such as taxes, title fees, and dealer fees

•  Any likely increases in car insurance premiums

If you decide to further explore how to trade your car in, here’s help!

5 Steps to Trade in a Car

The five steps to trading in your car include:

•  Figuring out the car’s value

•  Prepping your vehicle for trade-in

•  Getting quotes on its value from different dealerships

•  Negotiating your trade-in price

•  Completing the transaction

So, more specifically, what do you need to trade in a car? Here’s more info:

1. Figuring Out the Value of Your Car

Fortunately, plenty of online resources exist to help you determine your car’s value. They include:

•  Kelley Blue Book

•  Edmunds.com

•  Carfax.com

•  Consumer Reports

•  JD Power

What If I’m Upside Down on My Car Loan?

With an upside down auto loan, you owe more on your vehicle than it’s currently worth. People can end up with this type of loan when buying a vehicle without making a down payment or by taking an extended term. Or, the loan may have a high interest rate, causing the person to pay more on interest than the principal.

How Do You Trade in a Car That’s Underwater?

Trading in a car that’s underwater can make the transaction more challenging because you may need to pay off the old loan before buying a new one or fold the two loans together. So it’s important to find a lender that is willing to work with this situation.

2. Prepping Your Car for Trade-In

Take care of easy fixes — from handling any current recalls to seeing if there’s a simple way to address the check engine light if it’s on.

The dealer will make a trade offer based on the current condition of the vehicle. While you may decide not to invest in any major repairs at trade-in time, taking care of easier ones can help.

Clean the car inside and out as well so you can present it to best effect. Also, have receipts handy for any work you’ve had done so that you can show the dealer how well you’ve maintained the vehicle. Keeping your vehicle clean and well-maintained may increase the value of your car or slow its rate of depreciation.

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3. Getting Quotes from Different Dealerships

To ensure that you get the best price for your vehicle, take it to multiple dealerships that sell the make and model you want to buy.

Taking it to a used car dealership can be a good strategy, too, because it may be in the market to buy vehicles, especially ones that are in good condition with low mileage.

Do your research before going to any dealership and ask questions, especially if the offer sounds either too low or too good to be true. Read any fine print carefully.

Compare the offers you get to see what works best for your situation.

Warning Signs of a Predatory Dealer

After you’ve estimated your vehicle’s value through online resources, you may notice that the dealership quotes are different from the figures on valuation websites. That can be a natural part of the process. But if the price is significantly different, that can be a red flag.

Another red flag is pressure from the dealer for you to make a deal right now. A salesperson may tell you that if you don’t agree to a deal right now, there’s another buyer ready to take the car. They may also say that you need to agree right now or the deal is off the table. Or the salesperson might keep changing the offer, which can be confusing, making you unsure what you’d really be agreeing to.

Additional red flags to look out for: If the salesperson doesn’t seem to want you to inspect a car too closely, that’s a bad sign. And if the deal seems too good to be true, that’s also a sign to be wary.

4. Negotiating Your Trade-In Price

Negotiate your trade-in separately with a salesperson rather than as part of the purchase of another car. That way, they can’t offer you a great price on the new vehicle but then lowball your trade-in value to make up the difference.

Bear in mind that if you can’t get the trade-in value that you think your current car deserves, another strategy you could try is to sell the vehicle to another dealer and then use the cash toward the down payment on your new car.

5. Completing the Trade-In

This process will vary based on whether you still owe money on the trade-in vehicle and, if so, whether it’s more than the value of the vehicle.

If you don’t owe any money on the car, then the process can be pretty simple. The trade-in value is subtracted from the price of the new car and you can either pay that with cash or apply for a car loan.

In the event that the value of your trade-in vehicle minus any loans is more than the price of the new vehicle, the dealership will give you the difference. This can happen if you are, say, downsizing from an imported car to a domestic one.

When you owe money on the vehicle you’re trading in, the dealer will calculate the difference between what it’s worth and what you owe on it. If the number is greater than zero, then that amount is deducted from the price of your new vehicle. If it’s less than zero, then the trade-in car loan is underwater. In that case, to complete the trade-in, you’d need to pay the difference (the amount you’re under water).

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Pros and Cons of Trading in Your Car

Here, in chart form, are the upsides and downsides of trading in a car.

Here, dig in deeper.

Pros of Trading in Your Car

If you trade in a car, you won’t have to find a buyer and go through the stress of selling the vehicle yourself. Selling the vehicle yourself involves setting a price, marketing your vehicle to catch the attention of potential buyers, negotiating the price, and handling paperwork. A dealer does most of that work for you.

You can then sell a vehicle and buy your next one all in the same place, saving you time.

Plus, in many states, tax is only charged on the difference between the value of the vehicle being traded in and the price of the vehicle being purchased.

Cons of Trading in Your Car

You will probably make less money if you trade your car in than if you sold it yourself because dealers want to make a profit and therefore, may offer less.

Plus, your options for your next vehicle are limited to what’s available at the dealership where you traded in your current vehicle.

Recommended: Online Auto Loan Refinance Calculator

Does Trading in a Car Affect Your Credit Score?

Trading in a car may affect your credit score if you have an auto loan on the car and the dealership is slow in paying it off. Late payments can hurt your credit score, and this is one of the risks of trading in a car with a loan that is not paid off.

A dealership typically pays off any outstanding loan balance on a trade-in vehicle and gets the title of the car. But you remain on the hook for the debt until the loan is paid off in full. If you stop paying the loan and the dealership takes too long in covering the outstanding balance, the creditor may report you as late, which can hurt your credit score.

A lower credit score can impact your ability to borrow new money on terms that are right for you. Getting approved for auto financing can be difficult if you have bad credit, but you don’t necessarily need a good or prime credit score to buy a car.

Trading in a car generally has no impact on your credit score if you have 100% equity in your car and intend to buy a new or used vehicle using all cash and no financing.

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Trading in a Car That Is Not Paid Off

How to trade in a car that is not paid off may depend on whether you have positive or negative equity in the car. Positive equity means the appraised value of your car is greater than the outstanding balance on your car loan.

How to trade in a car with a loan may be easier if you have positive equity. You simply go to a dealership and trade in your existing vehicle to help yourself purchase a new or used vehicle.

Negative equity, meanwhile, means the outstanding balance on your car loan is greater than the appraised value of your car. How to trade in a car with a loan may be more complicated if you have negative equity. The dealership may require that you pay off the negative equity upfront, or you may have to borrow more money when financing the purchase of a vehicle.

Trading in a Car With a Loan

Trading in a car with a loan is more complicated than trading in a car without a loan. How to trade in a car with a loan may require that you make arrangements with the dealership to pay off your auto loan in full. How to trade in a car that is not paid off means you have to give the dealership the necessary details concerning your vehicle and car loan.

How to trade in a car with negative equity may require that you go to a dealership with the necessary funds or apply for larger financing. You may pay off the negative equity upfront, or you may agree to a larger auto financing package to cover your negative equity and finance the purchase of a new or used car.

Trading in a car with a loan may not always be a smooth process. When trading in a vehicle with a loan, you may want to continue making payments on your car loan until you get official confirmation of your auto loan being paid off in full. That can help you avoid getting a surprise late payment notice if the dealership takes too long to pay off the outstanding balance.

Factors That May Increase Your Trade-In Value

As mentioned earlier, keeping your vehicle clean and well-maintained may increase the value of your car or slow its rate of depreciation. Modifying your car with a new engine or making other enhancements can also increase the value of your car. Any steps you take to preserve or increase the value of your car can translate into a higher trade-in value.

Alternatives to Trading in Your Car

Perhaps you’re deferring buying a new car because the payments on it would be too high. In that case, paying off your current car loan faster could be a good idea for these reasons:

•  It can remove a payment from your list of monthly bills more quickly and you can enjoy some time without a car payment

•  You’ll have a better asset to trade in once you decide to get another vehicle

Refinancing your car loan can be another route to consider. That means you’ll take out a new loan to pay off what you still owe, ideally at a lower interest rate. Getting an auto refi loan doesn’t replace the car you own but may give you a lower monthly payment. That’s something you may want to consider when comparing auto loan refinance vs. trade-in.

The cost to refinance a car can vary by lender. Fees to compare include early termination fees (with your current lender), transaction fees, registration fees, and title transfer fees. Find out what applies in your circumstance and continue to make payments on your current loan to avoid any late payment fees.

The Takeaway

Trading in one car as you buy another can be a process that suits some drivers. Trading in a vehicle to get another one typically involves evaluating your current vehicle, prepping it for the trade-in, getting quotes from dealers, negotiating the trade-in, and sealing the deal. If trading in a car isn’t the right step for you, options include refinancing your current car loan.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How long should you keep a car before trading it in?

You should keep a car for at least 3-5 years before trading it in to minimize depreciation losses while still retaining good resale value. Trading in too soon can result in financial losses due to rapid depreciation during the car’s early years. Evaluate market trends and personal needs before deciding.

Does cleaning your car increase its trade-in value?

Yes, cleaning your car may increase its trade-in value. That’s because trading in a clean vehicle minimizes the amount of maintenance a dealership may have to do to get a vehicle ready for resale as a used vehicle. Wear and tear on a vehicle can promote car depreciation. Any additional work a dealership may have to perform to remove odors, dirt, and grime from a used vehicle can lower its trade-in value.

How much money do you lose when you trade in a car?

You don’t necessarily lose any money when you trade in a car, but you may make more money by selling the vehicle to a private party. If a dealership offers you a trade-in value of $8,500 and a private person is willing to buy your used vehicle for $9,900, the difference between the two values tells you what you stand to gain or lose with either transaction. Trading in a vehicle, however, may be the easiest and fastest way to replace your vehicle with another car.

Photo credit: iStock/xijian

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-106

When you’re ready to sell your car or trade it in for a new model, you’ll discover that your car is no longer worth anywhere near what you paid for it. The reason? Depreciation. Depreciation is when your car loses value over time due to normal wear and tear.

Before you sell or trade in your car, there are ways that you can increase its resale value — even if you’ve already made it a point to keep your car in pretty good condition. These tips can help you get more money for your vehicle. That way, you put extra cash in your pocket or get a bigger trade-in credit toward buying a new car.

What Is the Resale Value of a Car?

Your car’s resale value is the amount it’s worth if you were to sell it in its current condition. The state your vehicle is in will have a big impact on its value. A car with 100,000 miles on it, dents in the bumper, and a loud muffler will be worth less than the same vehicle with 30,000 miles on it that’s been kept up.

The make and model of a car will also be a determining factor. For example, luxury cars and SUVs are cars that may hold their value.

You can get an idea of your car’s resale value through online resources like Kelly Blue Book and Edmunds.

Recommended: How Much Is My Car Really Worth?

How Your Car’s Value Is Determined

There are a number of factors that help determine your car’s value.

Popularity of Make and Model

Some car makes and models are more popular than others, and some vehicles may be seen as more dependable, too. As a result, the laws of supply and demand can drive up resale values. If you have a car many people want, resale value will be higher than for cars that are easy to come by.

Trim

The trim level of a vehicle refers to the different available versions of a model. The higher the trim level, the more bells and whistles the vehicle has. This ranges from better fabrics on the seat to engine type. It will also help your car retain its value.

Mileage

How many miles you’ve put on your car, aka your odometer reading, is one of the biggest factors that affects depreciation. On average, people drive their cars about 15,000 miles per year, and the more you drive, the less appealing your car will be to potential buyers.

Age

The older your car is, the lower its resale value. This is because buyers assume a certain amount of wear and tear on the vehicle and higher mileage with older vehicles.

Safety

Safety features, such as blind spot detection and collision warnings, can help drive demand for a make and model of a car, increasing its resale value.

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Accident History

A car that’s been in an accident — even a minor accident — will be worth less. Accidents and repairs show up in a vehicle’s history report. And even if the repairs were made by a professional and are completely unnoticeable, many drivers will still choose a car with a pristine driving history.

Condition

When someone values your car, it will be classified as in excellent, good, fair, or poor condition. Most cars fall into the good or fair category, meaning they have been maintained well and require few repairs. The higher your car scores on this metric, the more it will be worth.

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Three Tips for Increasing the Value of Your Car

While you drive your vehicle, maintaining its value requires effort on your part. However, doing so will also help ensure you drive the safest car possible and that you’re able to resell it at a fair price when the time comes.

1. Keep Up With Routine Maintenance

Routine oil changes and service checks can help you stay ahead of small problems that might become big, expensive problems down the road. This is key when it comes to increasing the value of a car.

These prevention measures help make sure that all parts of your car are running smoothly for as long as possible. What’s more, a detailed service record can also help boost your car’s value. (In fact, it’s important to save all documentation about your vehicle, from the paperwork you received when you first bought the car to insurance claims.)

Maintenance costs vary depending on the make and model of your car, and you can actually research them online before you even make your initial purchase at websites like Edmunds or Consumer Reports.

Recommended: Luxury Cars With the Lowest and Highest Maintenance Costs

2. Pay Special Attention to Tires

Rotate, balance, and align your tires regularly to avoid wear on your car. If your tires are looking worn when it’s nearing time to sell, investing in a new set can help boost the value.

3. Make Repairs a Priority

If you’ve been driving your car around with some minor damage that doesn’t bother you, like a dented bumper or a broken tail light, consider making those repairs before you sell. Even minor damage can quickly reduce resale value, and it might be the make-or-break factor when a buyer is making their choice.

Recommended: Cylinder Head Replacement Cost Guide

Does a New Engine Increase the Value of My Car?

A new engine does increase the value of your car, especially if it didn’t have a working engine before. That said, a replaced engine may raise questions among potential buyers. Engines are supposed to last the life of a car. If they don’t, potential buyers may wonder whether the car has been in an accident, if there is something wrong with the car in general, or if the engine was replaced by someone qualified to make that kind of repair. These questions may be enough to spook buyers.

So, if your engine just has normal wear and tear, you may want to think twice about replacing it.

What to Do After Increasing the Value of Your Car

Increasing the value of your car can help you achieve a higher price when you sell or trade-in your vehicle. It can also make it easier for you if you ever pursue auto loan refinancing. The more your vehicle is worth, the more likely you will be able to find a lender who will offer you a loan.

When you refinance, you take out a new loan — one with better terms or lower interest rates — that you use to pay off your old loan. If you’ve built your credit score or interest rates are down, you may want to consider refinancing. The pros of an auto loan refinance may include a lower monthly payment or lower interest rates, better terms, and you may free up some cash you can use for other financial goals.

That said, there are potential downsides to consider, as well. You may be hit with prepayment penalties, and you should carefully weigh the cost to refinance an auto loan to ensure it ultimately pays off.

Recommended: Guide to Gap Waivers

The Takeaway

Increasing the value of your car is achievable through a combination of regular maintenance, strategic upgrades, and meticulous record-keeping. By keeping your vehicle in top condition, addressing both functional and cosmetic issues, you can significantly enhance its appeal and resale value. Increasing the value of your car can also help if you’re looking to refinance your vehicle.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Can you add value to a car?

Yes, you can add value to a car through various methods such as regular maintenance, upgrading parts like the sound system or tires, adding performance enhancements, improving the interior, and keeping detailed records of all repairs and modifications.

How do I increase the value of my car?

You can increase the value of your car by keeping up with routine maintenance, making sure your tires are in good condition, and making repairs a priority.

Does a new engine increase the value of my car?

A new engine can increase your car’s value by improving performance and reliability. However, the increase may not fully cover the cost of the engine. It’s most beneficial for classic or high-performance cars, where a new engine can significantly enhance appeal and resale value.

Photo credit: iStock/m-imagephotography

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-105

Shopping for an auto loan is a crucial step in the car-buying process that can save you money and secure better financing terms. But to find the best financing options, it’s important to know how to shop for a car loan.

Car loan shopping requires some preparation and an investment of time. But fortunately, it’s relatively easy to shop for car loans and even apply for auto loan financing online.

Read on for nine tips that can make finding a loan to buy your car easier.

1. Set a Budget

Before you get started shopping for auto loans, it’s important to know how much you can afford to pay for a vehicle. There are several things to factor into the equation, including:

•  Your target purchase price

•  How much you plan to offer as a down payment

•  Additional costs that may be due at signing, such as taxes, title fees, and dealer fees

•  Ongoing car insurance costs

•  Annual vehicle registration fees

•  Ongoing maintenance and repairs

If you have a vehicle you plan to trade in, you’ll also want to consider how that might affect the amount you’ll finance. The more trade-in value you can get for your current vehicle and the larger your down payment, the less you may have to finance. Getting a used car is another tip for saving money on a car.

If you drive a premium vehicle, luxury car maintenance costs can be particularly high. The average 10-year maintenance cost for a luxury car is over $10,000, according to an analysis of data on CarEdge.com, an automotive research and vehicle listings marketplace.

2. Check Your Credit Score

If you apply for vehicle financing, potential lenders will check your credit report and scores as part of the approval process. Your credit scores can also influence the interest rate and annual percentage rate (APR) you’ll pay on an auto loan.

That’s why, before you start shopping for a car loan, it’s important to understand how you might look to a potential lender based on your credit history. Reviewing your credit reports and credit scores can provide you with some perspective on what kind of loan terms you’re likely to qualify for.

As you review your credit reports, look for the following:

•  Positive items that might help your credit score, such as a solid payment history

•  Negative items that might hurt your credit score, such as payment delinquencies

•  Errors or inaccuracies

If you spot any error or inaccuracy on your credit reports, you can dispute that information with the credit bureau that’s providing it.

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3. Do You Need a Cosigner?

If your credit history is insufficient or you have a poor credit score because of past financial mistakes, getting a car loan could prove more difficult. In those scenarios, you might consider asking a cosigner to help you get approved for a loan.

A cosigner can be a parent, a sibling, a friend, or another creditworthy person who agrees to apply for auto financing with you. If approved, you and your cosigner are treated equally in terms of responsibility for repaying the loan.

Asking someone to cosign has both pros and cons. On the pro side, a cosigner with an excellent credit score could help you get approved for vehicle financing at the best interest rates. The con, however, is that if you fail to repay the loan, you could ruin your credit and your cosigner’s, as well as your relationship. So it’s important to discuss the benefits and potential downsides with your prospective cosigner before asking for a commitment. As you consider this option, you and your potential cosigner should also learn the details of whether a cosigner can become a primary borrower.

4. Look at Multiple Lenders

Once you’ve checked your credit and have an idea of what loan terms you’re likely to qualify for, the next step is to compare loans from different lenders.

Where to Look for a Car Loan

You have several options for where to shop for auto loan financing:

•  Brick-and-mortar banks or credit unions

•  Online banks and credit unions

•  Online lenders that provide auto financing

•  Dealership financing

Your current bank may be the first place you shop for car loans. If you’ve been a good customer for years or you have multiple accounts, your bank might be willing to offer an interest rate discount or other special incentives for getting a car loan.

But don’t limit your search for a car loan to just your bank. Take some time to compare interest rates and loan terms from online banks and credit unions, as well as online lenders that offer vehicle loans. If you’re buying a vehicle from a dealer, you can also ask about the dealer’s in-house financing terms.

What to Look at When You’re Comparing Car Loans

As you shop for a car loan, take note of the differences in what’s offered by different financing options. Specifically, pay attention to:

•  Interest rates

•  Annual percentage rates (APRs)

•  Loan repayment terms

•  Loan fees, including origination fees and/or prepayment penalties

•  Costs due at closing

It may be helpful to check the reputation of any lender you’re considering as you shop for car loans. Reading online reviews, checking the Consumer Financial Protection Bureau’s Complaint Database and looking at Better Business Bureau ratings can give you an idea of how trustworthy and consumer-friendly an auto lender may be.

On this topic, you might wonder what happens to a car loan when someone dies. The answer is that car loans do not simply disappear when a borrower dies. A surviving spouse may be responsible for paying the debt, or a lender may move to repossess the vehicle.

5. Consider Getting Preapproved or Prequalified

Getting prequalified or preapproved for a car loan could be helpful when you’re narrowing down your financing options. Loan prequalification means that a potential lender has taken a look at your finances and is willing to lend you up to a certain amount of money. Loan preapproval usually involves the added step of a hard credit check.

If you’re interested in prequalification or preapproval, be prepared to share some basic information with your potential lender, including:

•  Your income

•  Your Social Security number (if a credit check is required)

•  Details about the vehicle you want to buy, including purchase price, age, and the make and model

•  Proof of auto insurance or the ability to be insured

•  Your down payment, if applicable

You may also be asked about what kind of loan terms you prefer and how much money you plan to put down.

Having a prequalification or preapproval in hand when you’re car loan shopping can give you a better idea of how much you can afford to spend and how much financing you’re likely eligible for. Bringing a prequalification or preapproval letter to a dealer can also show that you’re serious about buying, which may make the dealer more willing to negotiate the purchase terms.

Recommended: What Is a Balloon Auto Loan?

6. Read the Fine Print

As you shop for a car loan and choose your financing option, don’t neglect reading the fine print. It’s important to know exactly what your obligations are as a borrower and what your total borrowing costs add up to.

When reviewing your auto loan documentation, be on the lookout for things like hidden fees or add-ons that you didn’t request. If you spot anything in the loan contract that you don’t understand, don’t hesitate to ask the lender or financing company to explain it.

Also make sure you review the loan amortization schedule so you understand how much your loan will cost and how your payments will be applied over time. Your lender should provide this amortization schedule, which shows you how long it will take to pay off the loan and how much of each payment will be applied to interest, to fees, and to the principal balance.

7. Consider Overall Cost as Well as Monthly Payments

When you’re shopping for car financing terms, the best way to get an auto loan may require that you consider various cost factors. You may review the total financing cost and the monthly payment of any loan offer. APR can impact the total repayment cost of a car loan, and term length can impact your monthly payment.

Some lenders may offer 144-month auto loans, particularly when financing exotic cars that cost more than $100,000. A longer loan term may give you a lower monthly payment but more interest charges over the life of the loan.

One of the keys on how to shop for auto loan financing is to consider the finance charges. Consumers with good credit may qualify for auto loans with an APR of 0%. Currently, good auto loan interest rates fall under 5-7% for new cars and 7-9% for used cars.

The average interest rate on new car loans in the first quarter of 2025 stood at 6.73%, according to Experian data. To shop auto loans as a consumer, you may compare rates across different lenders. The below table highlights the average total cost of new car loans vs. the average monthly payment in the first quarter of 2025:

8. How Much of a Down Payment Do You Want?

Making a down payment on a car can reduce the amount of money you need to borrow when financing a car purchase. Making a larger down payment on a car may also prevent you from being upside down on your car loan down the line.

A larger down payment can minimize your borrowing costs and monthly payment. A higher down payment can also bolster your equity stake in the car.

One of the down sides to making a larger down payment is it may deplete your savings. Having a sufficient amount of savings can serve as a cushion in the event of an emergency. If you’re looking for loan terms that are right for you and the best way to get an auto loan, you may want to consider how much of a down payment you can afford.

Recommended: Guide to Finance Charges on Car Loans

9. New vs Used Cars

It’s important to consider whether you want to purchase a new car or a used one. New cars offer the latest features, warranties, and lower maintenance costs initially, but they come with a higher price tag and rapid depreciation. Used cars, on the other hand, are more affordable, have already depreciated, and can offer good value if carefully inspected for quality. However, they may have higher maintenance costs and lack the latest technology.

When auto loan shopping, you may shop auto loans for new car financing or used car financing. The average interest rate on a new car loan is usually lower than the average interest rate on a used car loan. A new car loan in the first quarter of 2025 had an interest rate of 6.73%, compared with a rate of 11.87% for used car financing, Experian data show.

Consider your financial situation, how long you plan to keep the car, and whether you prioritize new car benefits or the cost savings of a used vehicle.

Recommended: Guide to Precomputed Interest Car Loans

Financing vs Paying Cash vs Leasing

Reviewing tips on how to shop for auto loan financing does not mean you cannot consider leasing a vehicle or buying a car outright with cash.

Leasing is a form of financing that allows you to operate a car in exchange for paying a monthly rent charge. Car leases typically include lower monthly payments than auto loan financing, but you can still compare lease rates to identify the leasing offer that’s right for you.

The below table compares auto loan financing vs. paying cash for a car vs. leasing:

Recommended: Guide to Writing Off a Car for Business Use

Car Loan Refinancing

If you end up with an auto loan you aren’t satisfied with, you could consider refinancing your vehicle. Refinancing could give you a better interest rate, shorten your loan term, or lower your monthly payment. Shopping around for different offers can be a smart way to tackle the process. As with initial car loans, your credit score will likely play a large role in determining your interest rate.

The Takeaway

As you shop around for a car loan and ask the right questions, you can likely find options that suit your needs.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Does auto loan shopping hurt your credit score?

Auto loan shopping can temporarily impact your credit score, but if multiple inquiries are made within a short time frame (usually 14-45 days), they are typically treated as a single inquiry. This minimizes the effect on your credit score while allowing you to shop around for the best rates.

What credit score should you have when car loan shopping?

When shopping for a car loan, a credit score of 660 or higher is typically considered good and may qualify you for favorable interest rates. Scores above 700-780 often secure the best rates, while scores below 660 may lead to higher interest rates or require a larger down payment.

Is it better to get auto loans from dealerships or banks?

Choosing between dealership and bank auto loans depends on your needs. Banks often offer lower interest rates and straightforward terms, while dealerships may provide convenience and special financing deals. However, dealership loans can sometimes include higher rates or hidden fees, so it’s wise to compare offers from both sources.

Photo credit: iStock/Burak Sür

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOALR-Q325-104

When you take out an auto loan, you receive money to purchase a car, and you make regular monthly payments until the loan is paid off. These regular payments make auto loans a type of installment loan.

Keep reading to learn more on what type of credit auto loans are, including whether they’re secured or unsecured loans, how it may affect your credit score, and more.

How Does Installment Credit Work?

A car loan is considered an installment loan. When you take out an installment loan, you borrow a lump sum of money to buy a car. You repay what you borrowed on a regular schedule over a fixed period of time.

In addition to paying back the loan principal (the amount you borrowed), you’ll also pay interest. Your lender will divide the principal and interest payments over the number of repayment periods (60 months, say) through a process known as amortization. The size of your monthly payments will depend on how much you borrow, what your interest rate is, and your loan term or length.

As you pay back the installment loan for your car, each payment will first go toward paying off interest, and then to paying down your loan principal. Over time, as you continue to pay the loan, the principal balance will shrink and so, too, will the percentage of each payment that goes to interest.

Are Auto Loans Secured or Unsecured Credit?

Although there are different types of auto loans, in general, auto loans are secured credit because your vehicle acts as collateral for the loan. If you fail to repay the loan, the lender can seize your vehicle to help recoup their money.

Not all installment loans are secured. Personal loans, for example, tend to be unsecured and require no collateral. However, unsecured loans are riskier for lenders. Because of this, unsecured loans often come with higher interest rates.

Recommended: Smarter Ways to Get a Car Loan

Auto Loans and Your Credit Score

Your credit score represents your credit history and how responsible you’ve been with managing your debt in the past. An auto loan is a type of credit that can have an effect on your score. Here’s a look at how car loans impact your credit score.

Can an Auto Loan Build Your Credit Score?

An auto loan could strengthen your credit score, provided that you consistently make your car payments on time. The largest component of your credit score is your payment history. In fact, payment history makes up 35% of your FICO® Score, which is the most common credit scoring methodology.

If you miss payments for your auto loan or your payments are late, your credit score will typically take a hit.

Auto loans can affect your credit in other ways, as well. For example, lenders like to see that you’re good at managing different kinds of debts, including credit cards and installment loans. This is known as your credit mix, and it makes up 10% of your FICO Score. Taking out an auto loan could add to your credit mix.

Don’t be surprised if your credit score initially drops a few points when you sign up for an auto loan. This is likely the result of the hard credit inquiry (or credit check) that’s required when you apply for the loan. The new loan will also increase your debt load, which might have a slightly negative effect on your score. These effects should be temporary, though, once you make your first few car payments on time.

Recommended: What Is a Deficiency Balance on an Auto Loan?

What Credit Score Do You Need for a Car Loan?

The credit score requirements for auto loans typically depend on the lender you’re using. Banks and credit unions tend to offer loans to borrowers with higher credit scores in the 601 to 850 range.

Captive finance companies, which are companies that are affiliated with car manufacturers, may offer loans to those with lower scores. Borrowers will typically need a credit score of 501 to 850.

Car dealerships and independent finance companies may also offer loans to borrowers with poor credit scores. Keep in mind, though, that those with higher scores will typically receive better interest rates.

The car loan interest rate a lender will offer you is largely determined by your credit score. Borrowers with the highest scores are typically given the lowest rates. Borrowers with lower scores are seen as riskier by lenders and are offered higher interest rates, which increases the overall cost of borrowing.

If you can’t find a reasonable interest rate, work on building your credit score. Pay bills on time, pay down your debt, and correct any mistakes on your credit report. You can receive a free credit report from the major credit bureaus — TransUnion®, Equifax®, and Experian® — or from AnnualCreditReport.com. Report any mistakes you find to the credit bureaus immediately.

Recommended: What Is a Car Title?

Refinancing Can Help Lower Rates

If you have an auto loan with a high interest rate, you may want to consider auto refinancing. This allows you to pay off your old loan with a new loan, ideally at a lower interest rate and better terms.

You might want to refinance a car loan when interest rates drop or when your credit score has strengthened. It might also make sense to refinance to a loan with a lower interest rate early on, when more of your installment payments are going to interest. Later, when more of your payment is going toward paying down principal, refinancing may not offer as much potential savings.

Recommended: Pros and Cons of Car Refinancing

The Takeaway

Auto loans are a type of installment loan that you pay back with regular monthly payments, including interest. The size of your payment will depend on the size of the loan you’re taking out, the interest rate, and the length of the loan. Your credit score can affect the interest rate you get.

Down the line, refinancing could help adjust your payment by lowering your interest rate or offering you a better loan term.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What type of credit is an auto loan?

An auto loan is a type of installment credit, where a lender provides a fixed amount of money to purchase a vehicle. The borrower repays the loan in regular, scheduled payments over a set period, typically including interest. This credit type is secured by the vehicle, meaning the lender can repossess it if payments are not made.

Is an auto loan secured or unsecured?

An auto loan is usually a secured loan because the car acts as collateral for the loan. It is possible to buy a car with an unsecured loan, but because these loans are riskier for lenders, you may get a higher interest rate. You might also need a higher credit score in order to qualify for an unsecured loan.

Is an auto loan variable or fixed?

Auto loans are typically offered with fixed interest rates, ensuring consistent monthly payments over the loan term. Variable‐rate auto loans are less common but do exist, often tied to an index like the prime rate, which means your monthly payment can fluctuate as rates change.

Photo credit: iStock/Jinda Noipho

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-103

Your car’s title is the proof that you legally own the car, and it’s usually required to sell your car or refinance your auto loan. If you have lost your car title, you may not be able to sell your car or get a new loan. Fortunately, there are ways to get a replacement car title, and the process is relatively pain-free.

Your car title is usually issued by your state’s department of motor vehicles or department of transportation when you first purchase your vehicle. You can get a replacement or duplicate title from the same agency. While the process varies from state to state, it will generally involve filling out a form, providing documentation of ownership, and paying a fee.

Read on to find out how to get a title for a car if it’s lost.

What Is a Car Title?

A car title is a legal document showing who owns the vehicle. The car’s title also has identifying information about the car itself, which generally includes:

•   Make

•   Model

•   Year

•   Owner’s name and contact information

•   Vehicle Identification Number (VIN)

•   Odometer reading at the time the title was issued

•   Information about the most recent car sale, including the name, address, and contact information for both the buyer and seller

Why Do You Need a Car Title?

Your car’s title document is the legal proof that you are the true owner of the car. Without the title, you will be limited in what you can do. One of the vehicle loan requirements is that you must show that you’re the owner of the car in question, usually by producing the title document.

An important thing to note is that most states are considered “title-holding” states. In these states, if you have a loan on your car, your lender will hold the title until the loan is fully paid off.

So if you live in a title-holding state, have a loan on your car, and can’t find your car title — don’t worry! Your lender has your car title and will send it to you when your loan has been paid off.

Recommended: How Soon Can You Refinance a Car Loan After Purchase?

Cost to Replace a Lost Car Title

While it’s generally a fairly straightforward process to replace a car title, it’s not always cheap to do so. The cost to replace a lost car title varies by state and can typically be anywhere from $10-$75.

For example, here are the replacement car title fees in a few states:

•   California — $27

•   Minnesota — $22.50

•   Ohio — $15

•   Pennsylvania — $72

You may also incur some costs in making sure that you have all of the necessary documentation to replace your car’s lost title.

Where to Get a Copy of Your Car Title

Depending on where you live, your state may have different names for the governmental organization that handles vehicle titles and registration. It will often be called something like the Department of Motor Vehicles (DMV), Bureau of Motor Vehicles (BMV), or Department of Transportation. That’s where to get a copy of your car title.

You can look on your state’s website to determine exactly what forms you will need to fill out, what documentation you’ll need, how much the car title replacement will cost, and whether you can file online or will need to go to a title office in person.

Documents Required for a Replacement Car Title

Because each state’s process is different, the exact documents that you’ll need for a replacement car title can vary. It’s a good idea to check directly with your state’s Bureau of Motor Vehicles or Department of Transportation to make sure you know what documents you’ll need. Here are a few basic guidelines:

Proof of Identification

The exact forms of identification will vary by state, but generally speaking, you’ll need to show identification as well as proof of ownership of the vehicle. This could include your driver’s license, information about the car itself, and a signed and notarized statement that you are the rightful owner.

Explanation for Duplicate Request

Depending on the state, you may have to explain why you are applying for a duplicate car title. You may also have to have your duplicate request form notarized, affirming under penalty of perjury that you are the legal owner of the vehicle in question.

Challenges of Losing Your Car Title

One of the challenges of losing your car title is that it can make things complicated if you want to sell your car or get a new car loan. Because the title document is what shows who legally owns the car, you will generally need to have it in hand before selling your car. It’s also important to understand whether you have a title loan or car loan before selling your vehicle or getting a new loan.

Recommended: Can Someone Take Over My Car Loan?

Can You Refinance a Car Loan if You Lost Your Car Title?

If you are looking at refinancing a car, you may have a difficult time if you have lost your car title and if you live in a non-title-holding state. If you live in a title-holding state (which is the majority of the United States), then your lender will still have your car title. In most cases when you are refinancing a car loan, your new lender will handle the entire process, meaning you won’t have to worry about doing anything with the car title. The same is to be true if you’re considering a refinance car title loan.

The Takeaway

A car title is a legal document with information about the vehicle itself as well as who owns the car. Without the car title, you may not be able to refinance or sell your car. Fortunately, it is fairly straightforward to get a duplicate car title through your state’s Bureau of Motor Vehicles or Department of Transportation. While the process varies by state, generally, you will need to fill out a form, provide documentation, and pay the titling fees.

If you live in a title-holding state (which is the majority of the United States), your lender will hold your car title until the loan is paid off.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What happens if you lose your car title?

If you lose your car title, you may not be able to get a title loan or car loan. You also may not be able to sell your car. If you have lost your car title, your best bet is to contact your state’s Department of Motor Vehicles (or similarly named office). They can direct you on how to get a replacement or duplicate car title.

Can you refinance your vehicle if you lose your car title?

If you are looking to refinance, you may not be able to complete the transaction without a car title. Keep in mind, however, that if you live in a title-holding state, your lender may have your car title until your loan is paid off. If that’s the case, your new lender will generally handle the entire process of re-titling the car as part of the refinance.

Where can I get a copy of my car title?

Most states will not issue a certified copy of a car title, since whoever has the car’s physical title document is considered the car’s rightful owner. However, most states will issue a duplicate or replacement car title. The process varies by state, so contact your state’s Department of Motor Vehicles to find out what you need to do.

Photo credit: iStock/Dima Berlin

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOALR-Q325-102