If you are considering refinancing your car, you should only do so for the following three reasons:

1) You can get a better interest rate. If you can get a rate at least 1 percent better (and preferably 3 or 4 percent better), go ahead and refinance your auto loan. You won't get much benefit from anything smaller than 1 percent. Mentally it may seem like 5.99% is better than 6.25%, but the reality is that they're so close it's not even worth your time.

2) You're at risk of defaulting on your car loan because you can't afford to make the payments. If you're one or two months away from repossession, by all means refinance your car.

3) Not being able to afford payments on your home loan is a definite reason why you should refinance your auto loan. This will only work if refinancing your auto loan will lower your car payments. Then you can use the money you save on your car loan to pay your mortgage.

However, if you're thinking about getting equity out of your car so you can get money to pay other bills, you should know that this is NOT a good reason to refinance. Cars do not have equity since they are depreciating assets, and each day they are worth less than the day before.

If you owe less on your car than it is worth, you shouldn't borrow against this equity since it won't last very long. "Car equity loans" are offered by some banks but are never a good idea. Think about it this way. Would it be worth it to get a $100 today if that means you would have to make two years of extra payments on your car?

If you do choose to refinance for extra cash now, you will regret doing so in two or three years when you are making those extra couple years of payments. The only reason you should refinance is if you are at risk of defaulting on a major asset.

If refinancing is necessary, be sure to keep in mind:

Don't pay any fees unless they're minor (such as the $20 your bank may charge for a new title or lien). Walk away from "refinancing fees" and "loan origination fees," and other charges along that line. The bank should be happy for your business and shouldn't charge you for it.

If you are going to refinance, do not add any more time to your car loan unless you are really desperate to lower your payments. For example, let's say that you took out a five year loan when you bought your car three years ago, so you only have two years left of payments. When you refinance, you shouldn't take out another five-year loan because now you will be making payments for another five years when you would have been done in two. All refinancing has accomplished is extending how much time you will be making payments on your car. When you refinance, get a loan that will end at the same time your original loan would have ended.

Always check with your credit union. Not only do credit unions want to help you, they usually have excellent rates. They will work with you more than a regular bank will, especially if you are in a situation where you may default on your loan.