Refinance Car Loan Calculator: How Much Could You Save?

Refinancing your car loan can be a great way to save money if you qualify for a lower interest rate. You could also reduce your monthly payment on your current car loan by spreading out your loan repayment over a longer period of time.

Use our auto refinance calculator to learn how much you could save with a lower interest rate or how much your payments would be if you changed your repayment term.

How to use the refinance car loan calculator

To find out if an auto loan refinance could help you save money or lower your loan payments, follow these steps:

1. Input your current auto loan amount, your current interest rate, and your current loan term. You can find this information on your monthly billing statement for your current loan.
2. Input your desired interest rate and desired loan term. This could be the targeted rate and term you’re aiming for with a refinance. It could also be the rate and term you previously prequalified for a refinance auto loan through a lender.
3. See your results. Compare your new monthly payment, term length, and total interest and cost with a refinance loan against your current auto loan. Review the difference in monthly payments, total cost savings, and the time it will take to pay off the new loan.

Should you refinance your auto loan?

Your calculator results can help you make a decision about whether refinancing your auto loan is the right move for you.

Most people take out auto loans when they can’t pay for a new car out-of-pocket. Often, your auto loan will have a long repayment term lasting several years. During that time, your financial situation can change.

Refinancing is a way to match your auto loan payment and terms with your current financial situation. Here are some reasons to refinance your car loan:

• Your credit score has improved. If you originally got your loan at a dealer or your credit has improved since you bought the car, it’s very likely you’ll be able to qualify for a new loan at a lower interest rate. This could reduce the costs of interest and lower your total repayment expenses.
• Your finances have grown tighter. On the other hand, your finances may have grown tighter over the past few years. If the payments on your current auto loan no longer fit your budget, you may want to spread out your monthly car payments over a longer loan term so you can pay less each month.

In either case, an auto loan refinance is a great idea.

Just be aware that if your goal is to reduce your monthly payments by stretching out your repayment timeline, this approach will cause you to pay more in total interest in the long-run.

While you will save money each month, you will pay interest for a longer period of time, so the total costs of loan repayment are going to be higher. This can sometimes be true even if you refinance to a rate lower than your current interest rate, depending on how much lower your new rate is.

If cash flow allows, however, you could refinance to a lower interest rate but continue paying your current payment amount. This could allow you to potentially pay the loan off in a similar period but with lower interest costs.

Ask the expert

Rand Millwood

CFP®

The main risk you run into in lengthening the repayment period on an auto loan is that you may not have paid enough of the loan off to cover the lost value when you go to sell or trade it in. If this happens, you must pay additional cash to close your loan before selling the vehicle.

How soon should you refinance your auto loan?

There’s no fixed time period you have to wait before you refinance an auto loan. However, it’s generally a good idea to give yourself about six months to a year to pay down your loan balance and improve your credit score before applying for an auto loan refinance.

If you refinance too soon, you risk:

• Not seeing much difference in your auto loan rates compared with your current loan.
• Getting additional inquiries on your credit report shortly after you receive your original loan. Too many hard inquiries in a short time can hurt your credit score.

However, you shouldn’t wait too long to apply for a refinance loan. Car loan interest is front-loaded onto the first years of your loan, so it is during this time that you pay the bulk of your interest costs.

Because of this, refinancing earlier in the life of the loan will typically help you save the most on interest associated with your car loan repayment.

Ask the expert

Rand Millwood

CFP®

Typically, a credit score of around 720 is where you see a significant jump from a standard or low credit score to a high credit score, and you will see a big improvement in the interest rates you receive. That credit score is where you usually receive the most bang for your buck in refinancing.

How to refinance a car loan

Refinancing an auto loan can be a strategic move to lower your interest rate, reduce your monthly payments, or adjust the term of your loan. Here’s a step-by-step guide on how to refinance an auto loan:

1. Review your current loan

Begin by thoroughly reviewing the details of your current auto loan. Understand your current interest rate, monthly payment amount, the remaining balance, and how many months are left on the loan.

Also, check if your loan includes any penalties for early payoff. This foundational knowledge will help you determine if refinancing can offer you a better deal.

2. Check your credit score

Your credit score plays a crucial role in the refinancing process because it influences the interest rates lenders will offer. Obtain a copy of your credit report from the major credit bureaus and check your score.

A higher credit score increases your chances of securing a lower interest rate on a refinanced loan.

3. Shop around for the best rates

Before making any decisions, compare refinancing offers from various lenders, including banks, credit unions, and online lenders.

Your goal is to find the lowest interest rates and terms that match your financial objectives. Prequalify with multiple lenders to see potential loan terms, such as the interest rate and term length, without a hard credit check, which could impact your credit score.

5. Calculate the costs

Understand all associated costs of refinancing, including any application fees, origination fees, and potential prepayment penalties on your new loan.

Use online auto loan calculators to compare the costs of your current loan against the potential refinancing offers. Input your preapproved rates and terms into the calculator to help you identify the most favorable offer.

This step will help you determine if refinancing is financially beneficial in the long term.

6. Gather necessary documents

Prepare all required documents for the refinancing application. Typically, lenders will ask for proof of income, proof of insurance, a driver’s license, your vehicle’s registration, and details about your current loan.

7. Apply for the new loan

Following your research and prequalification, submit a formal application to the lender that offers the best terms. The application will require detailed financial information and specifics about your vehicle.

Some lenders might offer a soft pull preapproval process, which can give you a sense of your eligible terms without affecting your credit score.

8. Evaluate the offer

Carefully review the loan offer from the lender. Pay close attention to the interest rate, the term of the loan, monthly payments, and any associated fees.

Ensure that the refinancing provides a tangible benefit, such as lower interest costs or more manageable monthly payments.

9. Finalize the loan

If the offer aligns with your financial goals, accept it and complete any further required paperwork. The new lender will then pay off your existing loan, transferring the debt to the new loan.

Clarify the timeline for when your new payments begin and ensure you understand all the terms of your new loan.

10. Update your auto insurance and registration

Notify your auto insurance provider about the refinancing to ensure your policy is updated accordingly. You may also need to update your vehicle’s registration to list the new lienholder.

11. Continue monitoring your credit

After refinancing, monitor your credit report to ensure the old loan is marked as paid off and the new loan is correctly listed. Continue practicing good financial habits to maintain or improve your credit score.

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