Why does she owe more money on the car..?

Question

My friend recently refinanced her vehicle. She owed 14k (430 a month) on a on a 2006 Honda and went in a year and some months later to refinance it. The dealer said she will be paying around 350 for it but now she got a statement from the finance company saying that she owes 17k and the payments have been reset to 63?

I was going to refi my car but I think I'll stick it out now. What happened. Did they rip her off or is it just how it goes?

Answer 1

It costs money to refinance a vehicle.  That is why she has in increase in the price now.  Was it really worth less than $100 bucks decrease in the payment price?

Answer 2

When a person refinances, the new loan has it's repayment schedule spread over a new term of months/years.  This resets the payments and the interest is figured over the life of the loan.  The interest is the cost of taking out this new loan (or refinancing) and this is why the bottom line cost went up.

Each loan is different.  Don't let this deter you from refinancing.  But when you do refinance, make sure you read all the terms carefully and know what you are getting into.  Only refinance if you can get a significantly better loan rate.  Otherwise on a car, it does not pay to do a refi because it depreciates.  On a house on the other hand, a refi makes sense if one can obtain a lower interest rate.