is refinancing a car a good idea? what's the catch?

Answer 1

I had terrible credit problem steming from a divorce. I financed a car with a 17.9% interest rate for 60 months. After 6 months I refinanced the HSBC for 12.9% for 54 months and reduced the payment by $50 a month.

Six months later I refinanced the car once again with a 9.49 interest rate with CITI FINANCIAL on a 48 month term.

So essentially I have the exact same months as I did when I started and I lowered the interest rate by 8.5 points.

Refinancing is an excellent idea as long as you don't keep pushing the loan back to 60 or 72 months to lower the payments. Let the interest rate reduction take care of that! Best answer??

Answer 2

Refinancing is generally a good idea if it gets you a lower interest rate than your current loan. However, it may not be worth it depending on the fee that is being charged to refinance your loan.

For example, say you've got a $10,000 loan at 10% for 4 years. That comes out to $253/month. If you refinance the rate down to 8%, that drops the payment to $244/month -- so, a savings of about $400 over the life of the loan. However, if they're charging a $500 refinance fee, then obviously it's not worth it.

Also, refinancing may stretch the loan out some more, which will make the monthly payment lower, but it also means you'll be paying off the loan (and hence paying interest) longer as well.

So, if we take the original loan from the previous example ($10k, 10%, 4 years) and refinance it at 8% and stretch out the loan to 5 years, we get a new monthly payment of $202/month. Seems like a real savings, right? $51 less per month. However, over the life of the new loan you will pay $202 x 60 months = $12,120....which is almost identical to the total cost of the original loan of $253 x 48 months = $12,144. Add any kind of refinance fee onto the new loan and you've lost money. That's why you should never buy a car based on payments -- it obscures the true cost of the purchase.

Here's a car loan calculator that can help you decide:
http://www.cars.com/go/advice/financing/calc/loanCalc.jsp?mode=full

Answer 3

This Site Might Help You.

RE:
is refinancing a car a good idea? what's the catch?

Answer 4

Citibank Refinance

Answer 5

Depends on your reason(s) for doing the refi. If you can get your payments and interest rate lowered and not extend the length of the loan drastically, then yes it is a good idea.

Answer 6

No. Very bad idea. With most cars you are "upside down" in no time (i.e. you owe more than you could ever get for it) and refinancing just makes that worse.

Answer 7

what if you refinance and keep the monthly payments the same as the original payments from the first loan?

Answer 8

Takes longer to pay off I think

Answer 9

Try https://tr.im/1ev7M

Answer 10

You pay more interest overall.