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Got a lower interest rate, but payment goes up slightly....refinance?

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  • Got a lower interest rate, but payment goes up slightly....refinance?

    I currently have an 08 Caravan financed with Chase at 12.75%. About 28k miles. Matures on 10/6/16. Kept getting offers from Capital One to refinance so I applied. Got approved at 8.06 for 48 months (so possibly about 4-5 months shorter than the current loan, ) and estimated payment is $433.85. My current payment is $424.17. My question, is it really worth it to refinance to get a better interest rate if my payment increases? Sure, it's only $9, but I'm not understanding the benefit. Maybe there is and I'm just not getting it???? My payment could probably go down if I go for a longer term, but it was a 72 month to begin with, and the thought of paying 4 more years makes me sick enough as it is.

    Any advice appreciated

  • #2
    You have to look at more than the monthly payment. The lower rate and shorter term loan is a huge savings. You don't say what the balance of the loan is, but it must be somewhere around $20,000. You would pay $3,463.45 in interest on $20k loan for 48 months at 8.06%. Extend the loan to 54 months at 12.75% and you pay $6,386.38. Extending the 8.06% rate another 6 months will cost you $481.97. I used the calculator at http://www.bankrate.com/calculators/...alculator.aspx For your purposes don't worry about filling in the extra payments portion. Just fill out the top portion, click "calculate", then click "show amoritization table" below the extra payments section to see the total interest you pay.

    Paying an extra $9 a month to save that much money is a no brainer.

    ETA: Was the current car loan discharged in BK? If so, have you considered buying a less expensive and/or newer vehicle and letting the bank repossess this one? I'm guessing the Caravan isn't worth what you owe.
    Last edited by LadyInTheRed; 04-17-2012, 01:41 PM.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

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    • #3
      LITR is correct, no brainier, here the refi makes sense since you are shortening the term.

      Generally, it almost never makes sense to refi a car, the only way it helps is if you shorten the term relative to your current loan and the interest drops a few points. Looks like you got both in your case, so refi makes sense. The goal is to "own" the car as quickly as possible and not have a car payment for the 10-14 year lifespan of the car.

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      • #4
        I recently refinanced as well and went from 18.24% to 9.32%. That will save me a ton of money...
        Filed CH7 9/24/2010, 341 on 10/28/2010, Disch.&Closed: 1/6/2011. FICO EX: 9/2: 672.
        FICO EQ: pre-filing: 573, After BK Public Record: 568, 10/3: 673.
        FICO TU: pre-filing: 589, After BK Public Record: 563, 9/2: 706.

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        • #5
          IMO I'd ditch the '08 minivan and go for a newer car. At the rates, payment amount and terms you're paying it doesnt make sense to keep a 4 year old vehicle for another 4 years with payments @ $434. You'll be paying almost $21K at that rate, plus whatever you paid in the previous 3 years. You can get a newer vehicle with incentives / rates that benefit you vs. the bank.

          Check around and see what you find.

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          • #6
            Originally posted by IBroke View Post
            I recently refinanced as well and went from 18.24% to 9.32%. That will save me a ton of money...
            Me too - I only went from 13.31% to 11% BUT I shortened the term by about 6 months - even though my payment went up a few dollars, I'm still saving 6 months of payment plus the couple points lower interest on my payments. TONS of $$ saved.

            Use one of bankrate.com's calculators and plug in your numbers - you can actually see how much you will save

            ETA: My old payment was $278 (72 mo, 13.31%), new payment is $286 (60 mo, 11%), BUT I'm paying $300 - by using bankrate's calculator, I discovered that the $14 extra a month toward principle will let me pay off my loan 3 months early! More $ saved
            Jessica
            Filed Chapter 7 (Minnesota): 5/23/11
            Discharged 8/30/11, Not yet closed...

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