Fire Truck Financing: Refinance or not?

My article last week generated quite a few emails about the subject of refinancing.

As I mentioned, refinancing can be a dangerous tool to finance a new purchase. Here's some good financial practices:

Each financing decision should stand on its own and be measured as part of the overall financial plan.
This means that each time you borrow money for a new purchase, you should identify how you will repay that loan. And this purchase and financing method fits into the big picture of future capital purchases and how you will pay for those purchases.

A poor financial practice
It is a very bad practice to have to refinance a loan to buy your next large purchase. That means failure on both accounts above- the initial purchase did not stand on its own merit and it did not fit into the big financial picture. Every department I talk to about a purchase has a good idea about their next purchase - the truck that it starting to cause some troubles - and not coordinating the current financing with the future financing need will lead to excessive borrowing costs.

When does refinancing make sense?
It makes sense when you keep the same terms (no extend the years on the loan) and lower your interest rate. In that case, you should pay a much lower payment each year. However, be on the lookout for fees and costs that may hurt you.

In summary
Refinancing is something that should not be taken lightly. If refinancing is necessary to afford your purchase, you've gotten into some poor financial habits.


Stay safe!

John R. Hill
Apparatus Budgeting Consultant
ENVIZION Financial
www.envizionfire.com