General Question

stemnyjones's avatar

When you refinance a car, is it in any way possible for your payments to increase instead of decrease?

Asked by stemnyjones (3959 points ) December 30th, 2009

I’m thinking about refinancing my car to save money

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21 Answers

Darwin's avatar

Depends on the interest rate and the duration of the loan. However, bear in mind that the longer you take to pay for the car, the more it will cost you in the end. All that interest doesn’t come cheap.

galileogirl's avatar

No offense, refinance only if you are really dumb. Before you sign the refinancing agreement, you should read it. Why would you agree to a higher payment? What would be the benefit to you? Just stand up and walk away?

A car is not like a house. Back in the good old days of the housing bubble houses increased in value. The house you bought 5 years ago for $200,000 @ 7% over 20 years is now worth $300,000 and you can get a 4.25% rate over 30 years. Although in the long run you will pay much more for the house, right now the monthly payment is less and you walk away with thousands in cash, Generally for the last 50 years home prices increased or remained the same so if you had to sell you could pay off the mortgage.

Cars always lose value, more at the beginning than at the end of the contract. If someone is offering you a car refi with cash back, something stinks.

stemnyjones's avatar

@galileogirl I apologize, I have no idea how these things work honestly.

So if I refinance my car, I most likely WILL be having to make higher payments each month?

If they tell me that, after refinancing, I will be paying more, can I step back and say nevermind?

srmorgan's avatar

@stemnyjones What are the terms of the refinance and your original loan and what is the make, model and year of the car?

srmorgan's avatar

@stemnyjones Before you do anything, read the entire agreement word for word. Check to see that there are no blank fields on the form, for example, the interest rate and the payment. Check your own credit score, the interest rate could depend on the strength or weakness of that.
Some auto contracts will specify an interest rate subject to revision based on credit andif your credit is not good you can get royally screwed.
If you have to do this, talk to your bank or credit union and not to the new car dealer or the used car dealer
SRM

stemnyjones's avatar

@srmorgan I haven’t looked into the refinancing at all yet, I just called the credit union and asked if there’s any way to lower my payments, and they said once I’m current on my payments I can refinance. I have a 2006 Hyundai Elantra.

srmorgan's avatar

@stemnyjones
First off, the credit union is a good place to get a loan, they are not out to rook you as a used car dealer or broker might be inclined to do

Did you buy the Elantra new? If so you should be in the fifth year of a loan which means you are paying principal not interest.

If you bought it used, you have to look at where you are in the loan. This is off the top of my head but if you are more than say 60% along in the loan you might be costing yourself more money (as noted before) because you will be paying more interest to the bank and not principal. Paying principal lowers the amount of interest you will owe.

The particulars are important, like what do you owe on the car? Market value.

(IN CAPS FOR A REASON) YOU ARE PAYING FOR A CAR AND LOOKING TO LOWER YOUR OVERALL EXPENSE, NOT YOUR PAYMENT. PAYING MORE MONEY MIGHT LOWER YOUR TOTAL COST OF OWNERSHIP AND IS NOT NECESSARILY A BAD THING.

Will the credit union charge you a fee for the transaction? Probably not, but if they did that could wipe out what you might be saving on the loan,

Looking for a lower payment by stretching out what you owe NOW may result in two things, 1. you are paying more interest over a period of time, the new loan, even though the payment is lower and 2. you may at one point owe more on the loan that the car is worth. This is not like people walking away from mortgages, you can’t walk away from car debt very easily.

SRM

srmorgan's avatar

As to saying “nevermind” you are under no obligation to do anything until you sign those documents. Be cautious if you have any doubts.\

SRM

galileogirl's avatar

@stemnyjones Don’t sign anything unless you understand everything. The only way out of this is to get your loan caught up and sell you car at a higher price than the amont that is owed or get someone you can trust to take over your payments. If your credit isn;t too messed up in January they run $0 down sales and you can get a cheaper car.

POLICE's avatar

After paying HSBC Auto Loans for a few years I asked to run my credit again to see about re-financing, they gave me a QUOTE…I went from 600 a month to 350 a month, with the option of paying of paying more than that each month with no penalty. Sooooo, ask…I had two years left on it, refinaced the balance and it all worked out.

galileogirl's avatar

@POLICE That doesn’t seem to be an option because she says she is past due on payments.

stemnyjones's avatar

I do plan on catching up on my payments next month.

I bought the car used. I currently owe $4621.71. I’m not sure how much the loan originally was, but my YTD interest is $707.24, and I’ve been paying on the car for approximately one year.

srmorgan's avatar

what do you pay per month and how much was the original loan?

I am an accountant, send me the details via private comment and I can run the numbers for you. do it before MOnday when life gets very busy for me, that is, if you want me to do that for you.

Takes ten minutes no big deal

SRM

YARNLADY's avatar

You will not save money by refinancing, it will actually cost you more. If your need to lower your monthly payments, you will have to take out a loan for a longer period of time, and that can often put you “upside down” when you own more on your car than it is worth, and you cannot sell it without coming up with more money to pay it off.

You can refinance for a shorter time period than you now have, and your monthly payments will go up, but you will pay less interest in the long run. You will save money by doing it that way, but it’s safer to simply make larger payments without changing your loan at all.

We always pay off our car loans before they are due by paying at least $100 more each month, and also pay ½ every two weeks, which shortens the length of the loan and saves a lot of interest.

stemnyjones's avatar

The only problem with what most of you are suggesting (paying more each month) is this:

Each month my household gets approximately $1190 in income.

My rent is $640. My electricity is $90. My car insurance is $226. My car note is $117. My health insurance is $50.

After all my bills, I have $67 remaining to buy household supplies, diapers, wipes, etc. Food stamps are on the way.

There’s not much room to play with, and at this point I’d rather pay more in the long run and have money to live right now.

srmorgan's avatar

@stemnyjones
Lowering your monthly payment by stretching the length of your car loan is possible and if you think that is what you want to do, that is your decision.
But as Yarnlady advised you, you want to avoid becoming “upside down”, a situation where you end up owing more on the loan than the car is worth.

I don’t think you are going to find that a re-financing is going to lower your monthly payment by all that much, but I suppose for you every few dollars help.

I would remind you of my advice to stick with the credit union to re-finance the loan and to avoid any dealers or finance companies because you will generally get a better deal at a credit union.

Good Luck

SRM

YARNLADY's avatar

@stemnyjones With a budget like that, there is no room for repairs if anything goes wrong, or even normal maintenance to keep your car in proper working order. My advice is get rid of the car and use public transportation.

1minuteloans's avatar

What’s the rate of interest? Generally,for refinancing a car, the loan companies consider it a used car, and the interest rates and loan to value amounts are lower.

stemnyjones's avatar

@1minuteloans I don’t know anymore. I paid off my car with my income tax.

CyanoticWasp's avatar

@stemnyjones if you need more money in your monthly budget, and you received an income tax refund to enable you to pay off the car loan, then THAT’s the place to start: have your withholding adjusted so that more money comes to you each paycheck instead of going to the IRS in the form of a free (for them) loan of your money. A halfway decent accountant can easily help you come up with a new (and perfectly legal and acceptable) W-4 form that you submit to your HR people so that your take-home pay will increase, your withheld tax will decrease… and at the end of the year you should have a much smaller tax refund, because YOU had the money all along. (It’s also possible that you may owe a small amount of tax when you file your return. For me, a “perfect” tax return has me paying about $25 – 50 or so at the end of the year.)

stemnyjones's avatar

@CyanoticWasp Wow, I didn’t know I could do such a thing. Thanks, that’s really helpful.

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