*The following was originally posted October 2, 2008 , updated 10/23/09.*

Cutting out little luxuries like a morning latte or dinner at a restaurant only goes so far to reduce expenses. To really make an impact you've got to look at your current expenses with a new perspective. Like you car payments. When was the last time you looked at your payment? Have you ever even considered that you might be able to lower those payments? Chances are good that an autoloan refinance could give you some relief each month. But don’t just look at your monthly payment before deciding to refinance.

Refinancing for longer terms could end up costing even more over the life of the loan. Say for example you’ve got a $15,000 auto loan at 12% written for 60 months. Your current payment is $360 each month. The total amount you’ll pay when the loan is finished is $21,622. You’ve just completed the 2nd year of payments, so you’ve already paid 24 payments or $8,640. Your remaining balance is $12,982.

You refinance the loan at a lower rate of 8%. This time you’re refinancing the remaining balance of $12,982. If you choose another 60 month loan your monthly payment would be just $263.22—nearly a $100 savings in your monthly budget. That would definitely relieve the strain. But over the life of this loan you’d pay $15,793. Add that to the $8,640 you’ve already paid and you’ve spent $24,433 on a $15,000 car.

But what would happen if you were to refinance at the same 8% rate and shorten the terms to 48 months? You’re payment would be slightly lower than the original loan at $317. And at the end of the refinanced loan you would have paid $15,216. So again you’d be paying almost $3,000 more than the original loan.

Refinance at shorter terms—say another 3 years and you’re payments are higher than what you are currently paying--$407, but your total cost only goes down to $14,645. Add on the $8,640 you paid previously and you’ve spent $23,285.

So what you need to decide is which is more important. Paying less overall or reducing your monthly payment and paying a bit more in total? Does that $3,000 matter to you? Maybe you’d be better off investing that money? But then again, it’s not like you’ve got that cash lying around. If you do you shouldn’t be considering this scenario at all. Remember, the name of the game is to reduce debt.

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