Is it smart to refinance a vehicle to get a lower payment?

There is a formula to determine when it is advantageous to refinance a home – I’m sure your financial adviser can make similar calculations for a vehicle.

Unfortunately, the answer is “it depends”...

-If you’ve paid down the loan and have equity in the car and you want to refinance the car to free up that cash and extend the term… then I’m not sure that that’s a good idea. You’re liable to have to the car break down before the loan is paid off…

-Or if you have equity and you’re trying to free up the money to pay down high interest revolving credit… assuming you don’t build up the revolving credit again it might be a good idea. Just make sure when you refinance the interest rate isn’t higher on the new car loan…

Personally, I would try and live with the car and drive towards paying it off… then using the money that was being used for the payment to pay down other debt or building towards paying cash on a reliable used car. I guess my question in this case would be, what does “crapping out” mean? Can you get that thing marginally running for a while so that you don’t have to incur more debt?

You need to weigh up what is more important to you, lower monthly repayments but a (possibly) longer term and therefore the chance it will cost you more in the long run, you also have to factor in any fee’s (for breaking the existing loan agreement and setting up the new one)

It’s a balance between total cost and monthly cash flow basically, only you can decide what your priority is there.

Generally, you cannot get enough money on a car older than three years to make it worth while. You might just come under the wire there. A good credit union will sometimes lend 80% of the low Blue Book value at a decent rate, but as mentioned above, the lower payments will nearly always result in a longer obligation.

Edit to add: The lender’s decision to give you a loan rests almost entirely on his evaluation of your ability to pay it back.

Personally, I always opt for paying the darn thing off early. I hate paying all that extra money in interest. Cars are too expensive as it is.

You might consider car-pooling or ride-sharing or some other option when your car dies. Then, once you have more cash, pay off the SUV early and save up what would have been the payments until you can afford to buy something for cash.