What refinancing a car loan changes
Refinancing replaces your current car loan with a new one, usually to get a lower interest rate, a lower monthly payment or a different term. Each of those goals pulls on the others. A lower rate cuts the interest charged each month. A longer term lowers the payment but gives interest more time to accumulate. Fees paid to arrange the new loan add to the cost on the day you sign. This calculator puts the two loans side by side so you can see all three effects at once instead of judging the offer by the payment alone.
How the comparison works
You enter what you owe now, your current rate and monthly payment, and then the terms of the offer: the new rate, the term in months and any fees. The calculator builds a month-by-month schedule for each loan. The current loan uses your actual payment, so a payment that is higher than the minimum pays it off sooner. The new loan starts from the same balance plus any fees you chose to finance and is paid in equal instalments over the term you enter. Interest each month is one twelfth of the nominal annual rate applied to the balance.
To compare the loans fairly, the calculator measures both at the same points in time. At any month, total cost is the payments made so far, plus the fees paid in cash, plus the balance still owed. That last part matters. A loan that has a lower payment today may leave a larger balance behind, and ignoring it would make the cheaper-looking loan look better than it is. With the default example, after 12 months the refinance is 171.08 cheaper and after 24 months it is 400.06 cheaper. Over the full period until both loans are paid off it is 534.38 cheaper.
Fees: financed, paid in cash and early payoff
The calculator keeps three kinds of fee apart because they behave differently. A fee added to the new loan raises the amount borrowed, so you pay interest on it. A fee paid in cash is an up-front cost that does not earn interest but leaves your pocket on day one. An early payoff fee is a charge from your current lender for closing the loan early. Enter each fee once, in one place. Putting the same fee in both the financed and cash boxes counts it twice. If your lender's payoff quote already includes a charge, leave it out of the early payoff box.
With the default example, adding a 100.00 early payoff fee raises the cost of the refinance by exactly 100.00, because it is paid at the start. A larger cash fee moves the whole comparison: with 600.00 in cash fees the full-period difference becomes 84.38 cheaper instead of 534.38 cheaper.
Why a lower payment can still cost more
Suppose you owe 12,000.00 at 0% interest and pay 500.00 a month, so the loan ends in 24 months with 12,000.00 paid in total. A refinance at 0% for 36 months has a payment of 333.33, which looks like a saving of 166.67 a month. But if it costs 100.00 in cash fees, the total outlay is 12,100.00 against 12,000.00: 100.00 more, despite the lower payment. The same 100.00 fee added to the loan instead leaves a principal of 12,100.00, a payment of 336.11 and a total of 12,100.00. It is the same extra 100.00, but it is spread over the payments. A simple ratio such as fee divided by payment saving can hide this, which is why the calculator reports the cost at matching points in time.
Worked example
The page opens with a 18,000.00 balance at 7.5% and a 450.00 payment, refinanced at 5.5% over 48 months with 150.00 in cash fees.
| Current loan | Refinance | |
|---|---|---|
| Monthly payment | 450.00 | 418.62 |
| Payments to pay off | 47 | 48 |
| Interest paid | 2,777.97 | 2,093.59 |
| Fees paid in cash | 0.00 | 150.00 |
| Total cost to the end | 20,777.97 | 20,243.59 |
The refinance payment is 418.62, which is 31.38 lower each month. The new loan runs for 48 payments instead of 47, so it is paid off one month later, yet it costs 534.38 less in total once the cash fee is included.
What the calculator leaves out
The calculator assumes fixed rates, equal monthly payments and a loan of at most 120 months, and it rejects a current payment that would take longer than that, instead of cutting the schedule short. It does not know your credit, your lender's eligibility rules or the vehicle's value. It does not work out an APR, so do not compare its results with a quoted APR, and it does not model negative equity, balloon payments, variable rates, taxes, insurance or add-on products. Lenders may charge interest daily and quote a payoff amount that differs from your statement, so ask for a written payoff figure before you decide. If you owe more than the car is worth, see what rolling that balance into a new loan costs.
Related tasks: price a new car loan, see how extra payments shorten your current loan or compare a general offer with the loan payment and APR calculator. This page is educational, not financial advice, and it cannot promise savings.
Auto refinance questions
How do I know if refinancing my car loan is worth it?
Compare the total cost of both loans at the same point in time, including fees and the balance still owed, not just the monthly payment. If the refinance costs less at the end of the loan and stays lower from some month onward, it is cheaper on those assumptions.
Is a lower monthly payment always a saving?
No. A longer term or added fees can lower the payment and still raise the total cost. The 12,000.00 example above has a payment 166.67 lower and a total cost 100.00 higher.
Should I finance the fees or pay them in cash?
Financing keeps cash in your pocket but adds interest on the fee, and the fee stays on the loan. Paying cash costs more today and nothing extra later. Enter the fee both ways in turn to see the difference for your offer.
What is a payoff quote and why use it?
It is the amount your current lender will accept to close the loan on a given date. It can differ from the balance on your statement because of accrued interest. Use it as the payoff balance when you have it.
Why is there a 120-month limit?
The calculator builds a month-by-month schedule up to 120 payments. A payment that would take longer than that is probably a typing error, and cutting the schedule short would misstate the savings, so it asks you to check the inputs.
Does this calculator include taxes or insurance?
No. It compares principal, interest and the fees you enter. Taxes, insurance, warranties and other products sold with a loan are outside the calculation.