Refinance Car Loan Calculator: How Much Could You Save?

Refinancing a car loan is smart if it will make your monthly payments more manageable or get you a better interest rate that means you’ll spend less money overall. Below, we’ll walk you through typical car loan refinance calculations and how to get the best auto loan refinance.

How is an auto loan refinance calculated?

When you refinance an auto loan, the lender employs the same calculation used for a new car loan, which includes:

• Your current loan balance
• The refinanced auto loan’s interest rate
• The term length of the refinance in months

The lender uses these numbers to calculate your new monthly payment, new total interest paid, and new total amount paid over the life of the refinanced loan.

You may also need to factor in additional costs such as:

• Termination fees to your current lender, for early payoff
• Registration and title transfer fees when switching over to the new lender (check with the DMV to see if this is required in your state) 

How the new monthly payment is calculated

The new monthly payment for an auto loan refinance depends on the interest rate and term length. Typically:

• Lower refinanced interest rate = lower monthly payment
• Higher refinanced interest rate = higher monthly payment
• Shorter loan term = higher monthly payment, less interest paid over life of loan
• Longer loan term = lower monthly payment, more interest paid over life of loan

Imagine you owe $20,000 on your auto loan, at an interest rate of 10% and with 4 years left. Your current monthly payment is $507. 

Here’s how a refinance can affect your monthly payment, depending on the new term length and interest rate:

If immediately lowering your monthly payment is your goal, choose a longer loan term. If you’re looking to save money on interest long-term, the shorter term is the right choice.

How the new loan amount is calculated

The new loan amount when refinancing is simply what’s left to pay on your existing loan. When you refinance, the lender pays off your balance—meaning that’s how much you’re borrowing.

For instance, if you still owe $15,500 on your current auto loan, the new lender will pay that off, and you’ll start making payments on a new $15,500 refinance loan, with interest, over the agreed-upon number of months.

Note: The payoff quote for your old loan might be slightly higher than what you still owe because of how interest is calculated. You may also have to pay an origination fee for the refinance. These will impact the amount of your refinance car loan.

How the new interest rate is calculated

Lenders calculate interest rates for auto loan refinances primarily based on your credit score. Your debt-to-income ratio and employment status, as well as current market conditions, can also impact the interest rate. Your previous interest rate has no bearing on the new interest rate for your auto loan refinance.

The table below shows an example of how much of an impact the interest rate can have on the total cost of a loan. Imagine a $20,000 refinance over 5 years:

How the new term length is calculated

Lenders vary in the loan terms they offer, but they often range between 2 and 7 years (sometimes more). Once you’ve selected a lender, you’ll choose the term you prefer, within their stated parameters.

For instance, a lender may offer auto loan refinance terms between 3 and 5 years. You can choose:

• 3 years: Faster payoff; least amount spent in interest; highest monthly payment
• 4 years: Moderately paced payoff; moderate amount spent in interest; moderate monthly payment
• 5 years: Slower payoff; most amount spent in interest; lowest monthly payment

How can I calculate the ideal auto loan refinance?

Your ideal auto loan refinance should either lower your monthly payment or reduce the total amount paid over the life of your loan (or both).

Lower monthly payment

You can subtract the cost of the new monthly payment from the old monthly payment to see how much you’ll save each month.

New = P_refinance * [r_refinance (1+ r_refinance)^n_refinance] / [(1 + r_refinance]^n_refinance – 1

Where

• P_refinance = Remaining loan amount
• r_refinance = New interest rate (divided by 12 for monthly rate)
• n_refinance = New loan term (in months)

For instance, imagine you have a $15,000 balance on your car loan, at an interest rate of 11% and 4 more years. Your current monthly payment is $388.

You qualify for a refinance with a new monthly payment of $290.

$388 – $290 = $98 saved per month

Reduce the total amount paid

Similarly, you can calculate how much you’ll save by subtracting the total amount you’ll pay over the life of a new loan from how much you have left to spend on your current loan.

Savings = (M_existing * n_remaining) – (M_new * n_refinance)

Where

• M_existing = Current monthly payment
• M_new = New monthly payment
• n_remaining = Remaining loan term in months
• n_refinance = New loan term in months

For instance, if your current monthly payment is $326 and you have 5 years remaining, the total cost is $19,560.

$326 * 60 months = $19,560

Assume your auto refinance results in a $219 monthly payment over 7 years. Your new total cost is $18,396.

$219 * 84 months = $18,396

Your total cost savings are $1,164.

$19,560 – $18,396 = $1,164

Should I refinance my auto loan?

Refinancing an auto loan makes sense in certain scenarios, but there are also times when you should refrain from refinancing.

You might want to refinance your car loan if:

You’re struggling to make monthly payments

If your income or monthly expenses have changed, you might struggle to afford your monthly car payment. When you refinance, you can get a longer loan term, which makes your monthly payments smaller.

Even if you’re struggling with your credit score, you can still find auto loan refinances for bad credit. If your score has dropped since you purchased the car, your interest rate may go up when you refinance—but lower monthly payments through a refinance may be the best way to ensure you don’t default on your loan and risk repossession.

You can qualify for a better interest rate now

If your credit score or market conditions have improved, you might qualify for a lower interest rate on your car loan if you refinance. Even if your credit score hasn’t changed, it’s possible there are better interest rates out there than what you’re currently paying, especially if you went with the dealer’s financing recommendation without shopping for a better rate.

But you probably shouldn’t refinance your car loan if:

Your credit score has dropped significantly

A lower credit score, a decrease in income, and/or an increase in debt are all reasons for a lender to offer a higher interest rate. If you have a decent rate now, it’s a better idea to keep what you have.

The loan is almost paid off

If you’re close to the end of your car loan, refinancing is less likely to save you money. Because of amortization, the last few payments of your loan go almost entirely to the principal; there’s very little interest left to pay.

But if you refinance in the home stretch, you’re committing to several more months—or years—of payments. Even if the payments are super small, you’ll likely pay more in interest over the life of the refinance than you would if you simply finished out the loan as it currently stands.