A Bad Idea: Auto Loan Refinancing
A lot of people today are refinancing their auto loans, but they don’t realize what a mistake auto loan refinancing can be. They think they can increase their cash flow by refinancing the auto loan, but several negative things can happen. First, cars usually depreciate sharply. Around 45% in the first three years, according to Consumer Reports. This leaves borrowers with an “upside down” loan, that is owing more than the car is worth. Also, amortization begins again with a new auto loan, which basically means early payments cut into faster than the principal. This could leave you with another “upside down” auto loan. Not only that, your payments won’t drop much, unless you increase the number of months you are paying the loan over, which is more expensive. The only reason I can think of to refinance you auto loan would be if you bought a car when you had bad credit and have an extremely high interest rate. Then, it would make sense to refinance the car loan, lowering your interest rate by a significant amount.
