Should you refinance your car loan? Maybe...

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With the stimulus package having passed and the hope that credit starts flowing a little more freely again, that may be why some respected financial experts have been saying: If you need to, go ahead and try to refinance your car.

For instance, Brian Moody of Edmunds.com recently told the audience of CNBC's show On the Money that people may want to consider refinancing their auto loan to bring down their monthly payment, and John Ulzheimer of Credit.com, who I interviewed for WalletPop last May, is referenced in this week's Newsweek, saying that if your interest rate is over 8%, you should consider getting quotes from your local credit union or some of the smaller banks, since they're generally the ones most likely to come up with a decent low-rate loan on a car that's under three years old.

In any case, I'm suddenly flashing back to 1993 when I was 23, and I bought an expensive Ford Probe. I'd love to say that I bought it because I knew the value of a car when I saw one, but really, I just thought it looked cool.

It was an expensive ride, with monthly payments that were north of $400. I had crunched the numbers, and it is true that if I had managed to go through the 1990s never having to pay for anything other than my rent, utilities and food, I could have afforded my new purchase. Of the many unwise financial decisions that I made in my 20s, that's the one I'll probably always regard as the most stupid.

Anyway, several months into my new car ownership, crumbling under the burdens of owning a car that I couldn't afford, I took the advice of some co-workers and made a bad situation slightly more tenable by refinancing my auto loan.

So I think there's something to be said for refinancing your car -- but I'd caution people to do it carefully.

In my case, I was able to get a loan through my bank that brought down the interest rate an entire point. The monthly payment was lowered to something under $400 a month. But then it was pointed out to me that I could bring my monthly payment lower, to $242, if I stretched out the loan for an additional year or two. That sounded good to me.

I don't think anyone at the bank pointed out, however, that by doing that I would (over the long run) spend a lot more interest, in order to bring down my monthly payments.

When I finally paid the loan off, it was 1999, and my car wasn't much longer for the world. When I think back on all of that, there's probably something to be said for just taking the bus.


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