What are the drawbacks to refinancing my car?

Question

I'd like to lower my monthly payments basically.

Answer 1

Downside is you are taking longer to pay off the car so in the end you are paying more for the car.  Plus it's worth a little less when you do pay it off.  If you really need to get the payments down, you have to do what you have to do though.

Answer 2

Without knowing what you owe, your credit situation, and what your car's worth, we have no frame of reference.

That being said, Satanic and the other poster are dead-on.  

Answer 3

By lowering your payments you will be paying longer, which means you'll be paying more interest, which means the car ends up costing you more. You have to decide if this car is worth it.

Answer 4

Refinancing a car loan is not same as refinancing a home loan where even small interest rate changes make a difference over 15 or 30 years. Small interest rates on car loans don't have the same effect.

Refinancing usually means stretching out the loan for more years. Later, you'll find you don't like making payments on a 8-10 year old car that needs work. And you'll be upside down for most that time, making it troublesome and costly to sell or trade.

As someone suggested, don't refinance for more months than are remaining on your existing loan. If that doesn't get you a lower payment, don't refinance.

Answer 5

like everyone else has said, the only time you should do that is if you only lower your interest rate, not increase the number of payments you have left.

Say you got a 5 yr loan on a 3yr old car, and now its 2yrs later and you cant really afford the payments any more, so you get refinanced at a slightly lower interest rate and for another 5 yrs, your payments go down alot but you now have a 5yr old car that you will be paying on for 5 more yrs. 2-3 yrs from now that car wont be worth anything and you will still owe 2-3yrs worth of payments on it. When you go to trade it in you will owe WAY more than its worth and you wont be able to get a new car. Then you have to keep that car and after another year it dies, and you still owe a yrs worth of money on it!

If you are really screwed financially and your not even close to being able to afford the car and its going to get repo'd and ruin your credit, then go ahead refinance, its better to screwed on a car than it is to be screwed on your credit, but just be aware of what will happen down the road and be prepaired to keep that car till its FULLY paid off.

If your close to being able to make the payments find another way, cut some other costs or get a second job or something because if you refi it wont be pretty in a few years.

Answer 6

Its a very slippery slope.

the only proper way to refinance is if the term (number of months) does not change, but the rate drops significantly.  

Typically, you can only refinance if you are in reasonable position on the car - owing equal to, or less than the car is worth.  Some banks will allow a slight over advance, but not much.

Do not get yourself in a position of stretchong out the term of the loan.  If you owe 39 more months on the car, then keep the refi at 39 months.  Stretching the term will lower your payments, but you will be upside down on the car much longer.  Those lower payments will not bring the balance down, so you will not pay it off as quickly.