Lowering your car payment may have a downside

Refinancing an auto loan can often significantly increase the amount you have to pay over the life of a loan.
By ALEX VEIGA Published: February 2, 2014
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A lower car payment, what's not to like?

It's an enticing proposition, but refinancing an auto loan can often significantly increase the amount you have to pay over the life of a loan.

“The concept of lowering your monthly payments will often outweigh the financial sensibility of that decision,” said Jack Gillis, auto expert for the Consumer Federation of America.

And yet, a growing number of borrowers are electing to refinance their auto loan.

Last year, auto loan refinance inquiries on LendingTree.com nearly doubled from a year earlier, according to the online lending service. Completed loans jumped 47 percent from the previous year.

But when might refinancing your auto loan be a smart move? Here are four factors to consider:

Interest rates

Refinancing an auto loan enables you to pay off your lender and take on a new loan at a more favorable annual percentage rate, or APR.

That means that you generally wouldn't consider refinancing unless you can get a lower APR. But there is an exception: If you want to lower your monthly payment and are willing to extend the repayment period for your loan. Of course, you will be paying more money over time.

Unlike mortgage loan refinancing, lenders generally don't charge fees or closing costs to refinance an auto loan.

That places a priority on shopping around for the best rate. In recent weeks, auto loan refinancing offers on LendingTree have been available for 1.99 percent for borrowers with the best credit scores.

Check lender websites or portals like Bankrate.com or LendingTree.com.

Estimated savings

The most attractive outcome in any refinancing is to lower the amount of you will repay during the term of the loan.

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