ZIP CODES AND PREMIUMS

Often, California has been in the lead when it comes to legislating for fairness. When a service industry is acting in an arbitrary way and damaging the interests of consumers, you can usually rely on Sacramento to do something about it. So, for example, the Insurance Commissioner instructed auto insurance companies not to rely on ZIP codes when writing policies. The real basis on which to assess risk should always be the individual driver. It's fair to look at the person's experience, driving record, how far he or she drives every year, etc. That way you reward the good drivers with lower premiums and hit the bad drivers with higher premiums. This ends the discriminations of higher premiums for people living in predominantly black or Latino communities.

It would be great if we could see this change sweeping across the US, not just in auto insurance, but for all classes of insurance. Unfortunately, the insurance industry has fought the change tooth and nail wherever it has been proposed. Lobbyists with deep pockets have been able to keep the legislators at bay. The ZIP code approach remains the norm.

The most recent piece of research comes out of Chicago and relates to health plans. It seems it's cheaper to live in the suburbs. The research used just over 3,000 ZIP codes in the Chicago area and, when analysing the rates charged, found that people living in the blue-collar suburbs west and south of Chicago paid almost 25% less for their insurance than those living in the downtown areas. Similarly, the residents of the northern suburbs paid about 15% less. Spread the net more widely and it turns out that everyone living between 15 and 25 miles from the downtown area pays an average of 13.5% less, while those who have moved 25 to 40 miles out of the city pay an average 25% less.

There are obvious explanations. The hospitals and clinics in different areas attract doctors and healthcare providers with different levels of experience and expertise. Operating costs will also change with local conditions. The level of support for public facilities and programs from local government naturally varies depending on the local tax take and political factors. These affect the rates for services the insurers can negotiate with the local provider networks. And then there are all the intangible factors based on the wealth or poverty of an area, the percentage of people without current health insurance, and so on. Put everything together and profiling by geography may produce very different results. This leaves us with an uncomfortable reality. As it stands, the health insurance industry is unregulated. It can charge what it likes using whatever factors it wishes to consider significant. As and when the healthcare reforms pass through Congress, some practices that produce unfairness will disappear, e.g. no more discrimination based on gender, no more discrimination by denying coverage to people with pre-existing conditions, no more caps on lifetime benefits, and so on. But the ZIP code abuse will not be affected. No matter where you live, you will be judged not on your actual health records but the "accident" of your address. Perhaps you should consider relocating to a better area to get the best health insurance rates.

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REFINANCING AN AUTO LOAN

Refinancing is the payment of one’s current loan using a new loan from another lender. The new lender pays off the old loan and the customer makes his/her loan payments to the new lender.

Customers are usually offered lower interest rates as well as lower monthly payments when refinancing. Because interest rates fluctuate, it is a good idea to shop around for lower competitive rates, especially within the first year of obtaining that car loan. You could end up saving a whole lot of money by the time the loan is paid off.

While auto refinancing has its own advantages, it is not without disadvantages. It is important to understand both when considering refinancing your auto loan.


ADVANTAGES OF REFINANCING:

Refinancing helps you save money by lowering the interest rate. A lower interest rate is usually the first consideration for anyone looking to refinance an auto loan. If rates have gone down since you purchased a vehicle, it is prudent to shop around and see if you can refinance your auto loan, of course at a lower rate. This saves you money in the long run. And even more savings if you refinance during the early part of your term, when most of your payments go to the interest payment. It can also help you pay off your car loan earlier because of the reduction in the overall interest.

Also, most of the time, your payments are likely to be lower when you refinance. This is especially the case if your new loan is extended beyond the initial loan payment schedule. The basic advantage with this kind of arrangement is that it helps reduce the total monthly expenses, especially for those who are working on tight budgets. Plus, you will have some more money to pay for other debts (which might have a higher interest), take care of other unexpected expenses or sending in an extra amount towards your loan, without exceeding your income.

DISADVANTAGES:

Refinancing may not save the consumer any money in the long run, if the loan period is extended beyond the original schedule. Most customers are attracted to the new lower payments, without paying attention to how long they have to pay the loan. Unless there is a big difference between the new and the old interest rate, one could end up paying more money than on the original loan. But this can be prevented if you strive to pay more than the required monthly payment, thus bringing you closer to paying off the loan earlier, hence the savings.

Fees: Sometimes, a customer might incur lien holder fees, re-registration fees, or in very rare cases, early payment penalties. These are very negligible though (somewhere less than $100 for lien holder and re-registration fees), which you can save on the new loan after about three payments.

Temporary reduction in the credit score, because in the search for auto refinancing, the lender will check your credit score, which will lower your score by a few points. But this should not be a big deal, as the points will shoot up again when you continue making payments.

Staying in debt a little longer. When one’s payment is extended because of the newly refinanced loan, it keeps the customer in debt longer than it should have taken.

All in all, it is wise to refinance if you will be getting a better interest rate. To realize the benefit of refinancing however, you should try to pay more than the minimum monthly payment and pay it off earlier than anticipated.

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