A Reddit user is contemplating refinancing a car loan but needs to consider the total borrowing costs. Current monthly payments are $610.10 at 9.92% for 63 months. A new loan at 6.14% would shorten the term to 60 months but raises monthly payments to $643.40. Although he's paying off the loan faster, he ends up with higher overall costs compared to his original loan. The article warns that refinancing should typically decrease total interest paid, indicating something is off in this loan offering.
Refinancing to a loan with a lower rate and a shorter payoff time can make sense even if it increases monthly costs.
A quick look at the numbers shows the poster will end up paying about $33.30 more per month.
When you run these numbers, something is very wrong. Shortening your payoff timeline often should increase your monthly payment, even with an interest rate drop.
It's also important to look at the total borrowing costs over time before making a decision.
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