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Posted in Auto Loans
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dajajuba

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Your recommendation for refiniancing my auto loan turns out to be a ripoff
They want to increase the term of my loan as well as raise the interest rate by over 6% and only reduce my monthly payment by $84.00. How does this save me money in the long run? Longer to payoff and higher interest!

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It's up to you to evaluate all offers to see if they make sense for your financial situation. 

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Credit Karma Refi Recs are Wrong!

It turns out that the figures in the Credit Karma recommendations are wrong.

My recommendations say if I refinance, I will save me $2,172 per year.  That appears to ignore the additional payments required.  You see, both my current and recommended loans use the exact same interest rate, but the new loan adds 12 months.  If I simply multiply my current payment ($994) by my remaining payments (51), I get $50,694.  If I multiply the new loan payment ($813) by the term (63 mos.), I get $51,219.  Thus the new loan costs me $525 MORE than my current loan.  

The reason for this MASSIVE ERROR is that the Credit Karma website only counts the reductions in monthly payments.  The recommendation page shows the terms, but seems to ignore the fact that, in my case, the new loan would add $9,756 in payments beyond the end of my current loan.  Similarly, the "costs over the lifetime" graph appears to count the loan costs, mostly interest, from the first 8 months of my loan for my current loan but not for the new loan.  Again, once you factor in what I've already paid, the new loan costs me $525 more despite the claimed savings.  

This is the type of hidden "savings" that organizations like Consumer Reports try so hard to fight against. Honestly, the savings really seem real when you see them.  Because my loan and the recommended loan both use the exact same interest rate, it was pretty clear that something was incorrect.  How can refinancing at the exact same rate, with the associated refinance fees, actually save me money?  It can't, and especially since it drags out my loan by 12 months, adding even more interest.  

Bad, bad, bad!

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