My mom was able to refinance her loan, but I have some questions..

[WallyxD]

So here's the story: the bank that my mom financed her car with, told her she was approved for a refinance.  Her monthly payments are now $143 cheaper a month.  What I don't understand is that my mom didn't initiate the refinancing, meaning she didn't apply; while making her payments they simply told her, "We will try to see if you qualify for lower car payments or we will try to refinance you" or something along those lines.  Wouldn't the bank be losing money, so why would they willingly refinance?  My mom isn't necessarily knowledgeable about auto loans and stuff, so I told her to request the up to date loan information from the lender which I believe includes the payoff amount, months left on the term, remaining balance, interest, and so on.  My question is, is there like an appropiate term for what she should request, or is 'auto loan information' good enough?  What other questions should be asked, because it seems a bit fishy to me.  Keep in mind that she bought her car from a Buy Here, Pay Here dealer and financed I guess, "in house" or whatever lol.

[HoldingOntoHope]

Has she already signed on a deal or is she just contemplating the offer? What you need to know is how are they getting to the lower payment. It is possible that their "Refinance" is simply extending the length of her current loan especially on a Buy Here Pay Here deal.

What you need is the terms of her original contract (Purchase price, interest rate, and length of loan). Then figure out how many more months she has to pay on that. Multiply the payment and you know the total due if she stays with it. Then get the terms on the new deal. Instead of purchase price you would see what the initial loan amount is. Then find out interest rate, monthly payment and length of contract. Multiply the payment by the months for the total cost. The resulting math will tell you if it's a good deal for her or them.

[WallyxD]

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@HoldingOntoHope wrote:

Has she already signed on a deal or is she just contemplating the offer? What you need to know is how are they getting to the lower payment. It is possible that their "Refinance" is simply extending the length of her current loan especially on a Buy Here Pay Here deal.

What you need is the terms of her original contract (Purchase price, interest rate, and length of loan). Then figure out how many more months she has to pay on that. Multiply the payment and you know the total due if she stays with it. Then get the terms on the new deal. Instead of purchase price you would see what the initial loan amount is. Then find out interest rate, monthly payment and length of contract. Multiply the payment by the months for the total cost. The resulting math will tell you if it's a good deal for her or them.

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That was my thinking; that they're going to extend her term.  She's supposed to head there tomorrow to 'finalize' it or whatever, but I'll let her know to carefully read the contract and will tell her everything else you said.  Thank you.  If interested, I'll just post here tomorrow to let you know whether the loan term was extended.

[jackg]

Please do not allow your Mother to go any further with this. Anytime a lender, especially a bank, wants you to do something it's only to benefit them. Sure the monthly payment will go down that's how dealers sell you financing to begin with. I can almost guarentee you that if you went into the financing office at any dealership they will try their best to extend the length of the loan to the maximum time allowed by telling you your monthly payment amount will be lowere. Do some simple math for yourself to prove it, the longer any amount is financed the more interest you'll pay. Not to mention all the fees they'll hit her with to refi the loan, this isn't something she should do.

[WallyxD]

Believe me, I was wary when she told me what was happening. I haven't looked at the paper work, but she told me she had 28 payments left on her original term and the new loan would be (I think she said $140ish) lower a month, but the term will be extended to 36 months. After figuring out how much she would pay, she is going to save around $2000 by going with the new loan. So I guess it was well-intentioned on their behalf, unless there's something I'm missing. Again, I haven't looked at the paper work, but I'll do so as soon as I can.

[HoldingOntoHope]

A broad generalization of "They are always going to stick it to you" is never a good reason to not look at alternatives. As I mentioned before you simply need to look at the offer and run the numbers. It sounds like you have a handle on that and if the numbers are right even extending the loan term in this case can be a good deal for your mother in terms of easing her budget and saving money in the end. I'm glad you checked in with the info. It may be "The exception to the rule" case.

[SamsungHDTV]

What you want to look for is a 'pre-payment penalty' that some lenders may charge if you pay early. Your mom should refinance under the new term with the lower rate and longer term. But she should continue to make the same payment amount on the current loan. If she does that she will have a 36 month, but it will be paid off a few months less than 28 months because of the interest savings. The key is if there is a pre-payment penalty. If there is, how much is it? Is it still saving money?