Auto Refinance Calculator

The calculation itself

Two comparisons, not one. The monthly comparison is the payment on the remaining balance over the months left, against the payment on the same balance over the new term at the new rate.

The lifetime comparison is the interest still to come on the current loan — payment × months remaining, less the balance — against the total interest on the new loan, plus fees.

They can point in opposite directions, and when they do the lifetime figure is the one that decides. The break-even is simply fees ÷ monthly saving: the months of saving needed before the fees have paid for themselves.

In practice

A $20,000 balance with 48 months left at 9% costs $497.70 a month, with $3,889.64 of interest still to come. Refinanced at 5.5% over the same 48 months, the payment falls to $472.11 and the remaining interest to $2,361.11.

After $300 of fees that is a lifetime saving of $1,228.53, and the fees are recovered after about 12 months. Both measures agree, which is what a genuinely good refinance looks like.

Now the trap. The same $20,000 but with only 24 months left at 9%: the payment is $913.69 and there is just $1,928.68 of interest left to pay. An offer of 8% over 72 months cuts the payment to $355.92 — a saving of $558 a month, which is the number the offer will lead with.

That deal costs $5,326.58 in interest. Against the $1,928.68 you were going to pay, plus $300 of fees, it is $3,697.91 worse. The rate improved and the deal got substantially more expensive, because the lower rate is being applied for three times as long.

Where the figure deceives

Almost every refinance offer resets the term, and that reset is where the monthly saving comes from. A rate improvement of one point is worth very little; a term extension of four years is worth a lot, monthly, and costs a lot in total.

The further into a loan you are, the worse this gets. Amortisation is front-loaded, so by month 40 of a 60-month loan most of the interest has already been paid — there is very little left for a lower rate to save, and a new long term has plenty to add.

Refinancing repeatedly compounds it. Each new loan restarts the front-loaded interest and re-charges the fees, and a car refinanced twice can end up costing more than the original loan on a strictly better sequence of rates.

On rates, and what this page will not tell you

This calculator takes rates you have been quoted. It does not publish current auto loan rates, average rates, or rates by credit score, and that is deliberate rather than an omission.

Those figures change continuously and vary by lender, by vehicle age and by region. A page carrying a number that was true when it was written and stale by the time it is read would be worse than one carrying no number, because the stale one gets believed.

The same reasoning is why no page here is named for a particular bank or credit union. Rates from a specific lender belong on that lender's own site, where they are maintained.

Acting on it

Judge the offer on lifetime cost first, and only then check that the payment is one you can make. If a lender leads with the monthly saving and will not readily state the total interest, that is information.

Ask for the new loan at the same term you have left, not the term offered. It is usually available and it is the comparison that isolates the rate improvement.

Do the applications inside a short window. The main scoring models treat rate shopping for one loan as a single inquiry, so comparing several lenders promptly costs no more than approaching one.