Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Refinancing a car loan swaps the old rate for a new one, and the question is how long the saving takes to cover the cost of switching. On $24,000 with four years left, moving from 9.5 percent to 6.5 percent drops the payment by about $34 a month, and $300 of fees is recovered in about nine months. The saving is real only if you keep the car and the loan long enough to pass that break-even point, and if the new term is not longer than the old one.
Before you rely on it
What to check
Compare the remaining term of the new loan with the old one. A lower payment from stretching the term can raise the total interest even at a lower rate.
The common error
Where people go wrong with auto refinance calculator
Focusing on the rate alone. Fees, a longer term and any prepayment charge on the old loan can leave the total cost higher than the loan you had.
Sensitivity evidence
How current loan balance changes the break-even time
| Current loan balance | Break-even time | Monthly payment savings |
|---|---|---|
| $19,200 | 11.1 months | $27 |
| $21,600 | 9.9 months | $30 |
| $24,000worked example | 8.9 months | $34 |
| $26,400 | 8.1 months | $37 |
| $28,800 | 7.4 months | $41 |
Every input, tested
Which input moves the break-even time most
| Input | Tested from | To | Break-even time at each end | Swing |
|---|---|---|---|---|
| Current rate | 7.5% | 11.5% | 26.9 months to 5.3 months | 21.7 months (244%) |
| New rate | 5.5% | 7.5% | 6.7 months to 13.2 months | 6.5 months (74%) |
| Current loan balance | $21,600 | $26,400 | 9.9 months to 8.1 months | 1.8 months (20%) |
| Refinance costs | $270 | $330 | 8.0 months to 9.8 months | 1.8 months (20%) |
| Remaining term | 3.0 years | 5.0 years | 9.0 months to 8.7 months | 0.3 months (3.7%) |
Two variables at once
Break-even time by current loan balance and current rate
| Current loan balance \ Current rate | 5.5% | 9.5% | 13.5% |
|---|---|---|---|
| $19,200 | 0.0 months | 11.1 months | 4.6 months |
| $21,600 | 0.0 months | 9.9 months | 4.1 months |
| $24,000 | 0.0 months | 8.9 months | 3.7 months |
| $26,400 | 0.0 months | 8.1 months | 3.4 months |
| $28,800 | 0.0 months | 7.4 months | 3.1 months |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Current loan balance | $24,000 |
| Current rate | 9.5% |
| New rate | 6.5% |
| Remaining term | 4.0 years |
| Refinance costs | $300 |
| Break-even time | 8.9 months |
| Monthly payment savings | $34 |
Where the inputs come from
Current loan balance and rate come from your latest statement, remaining term is how many years are left, the new rate is a quote from a lender for your credit today, and refinance costs are title, registration transfer and any lender fees. Check for a prepayment penalty on your current loan, which is uncommon on auto loans but possible. If your credit score has improved since you bought, a lower rate may be available.
When the result stops applying
Lenders limit refinancing by the car's age, mileage and value relative to the loan, and a car worth less than the balance may not qualify. New loans restart some fees and can affect your credit score temporarily. Extending the term is a common trap. Gap insurance or add-ons from the old loan may need to be replaced.
What to compare it with
Compare the payment on the auto loan calculator, and check the payoff with the auto loan payoff page. The auto negative equity and depreciation calculators show whether you owe more than the car is worth. The loan comparison calculator compares two offers directly.
People also ask
Frequently asked questions
When does it make sense to refinance a car loan?
When your credit has improved or rates have dropped enough that the savings exceed the costs, and you plan to keep the car past the break-even point.
Does refinancing hurt my credit?
There is a small, temporary dip from the inquiry and the new account, which typically recovers as you make payments on time.
Can I refinance if I owe more than the car is worth?
It is difficult. Many lenders require the loan to be near or below the car's value, so negative equity can block a refinance.