Monday, 28 March 2022

Auto Loan Refinance Calculator: How Much Can You Save?

Why refinance?

Maybe you’d like to lower your monthly car payment. Perhaps your credit score has improved. Or maybe you think the dealer marked up your interest rate when you bought your car. Depending on the terms of your original loan or changes in your finances, refinancing might save you money on interest or reduce your monthly payment.

Gather key information

To use this calculator most effectively, you'll need several details about your current loan. You can easily find the information on your latest loan statement or by calling your lender. If all else fails, estimate the information for a quick approximation of the results.

Auto Loan Refinance Calculator
Auto Loan Refinance Calculator

Enter information about your current loan in the lefthand column. The information about your new loan, or the loan you're considering, goes on the right. The results are displayed automatically in the boxes below.

Current loan

Original loan amount: This is the total amount of money you borrowed. If you bought a new car and made a down payment, it's the purchase price of the car minus the amount you put down.

Current interest rate: This is the interest rate you qualified for at the beginning of your loan. If you financed through a car dealer, you might be paying a higher rate than you deserve. This often happens to people who don’t get preapproved for a loan or those with below average credit, mainly because they are unaware that better rates are available.

Length of current loan: This is the number of months in the loan when you began paying it off. For new cars, most people take out 60-month loans.

Balance of current loan: Hopefully, you’ve been making payments on time each month. If you’ve had the loan for a year or more, your current balance is well below what you borrowed. If you don’t know how much you still owe, look at your latest statement or call your lender and ask for the "buyout amount."

Months left on current loan: This is the amount of time remaining on your original loan. It’s hard to refinance at a better rate without a history of regular, on-time payments for at least six to 12 months. However, the more time left on your loan, the more you could save by refinancing.

New loan

Refinanced loan amount: If you don’t know how much you still owe, look at your latest statement or call your lender and ask for the "buyout amount." You may owe more than your car is worth; most lenders will refinance amounts greater than a car's book value.

New loan term: One advantage of refinancing is that you can change the amount of time to pay off the loan. If you want to pay off your loan more quickly, select fewer months than you now have remaining. This will mean you’ll pay less in interest. If you want to lower your monthly payment and you don’t mind paying more for interest, you can extend the loan for an extra six or more months. But be careful when extending your loan — you could end up owing more than the car is worth, since cars depreciate quickly.

New interest rate: If your credit has improved or interest rates have dropped, you might be able to refinance your car loan at a lower interest rate. If you’re just testing the waters and don’t know if you want to move forward, you can guess what interest rate you might get. If you’re serious about refinancing and want exact figures, apply to multiple lenders first. Then, once you get a quote, enter that interest rate here.

Note that when you refinance, you may have the option of taking cash out of your loan. In most cases, there isn’t much equity in a car loan, so taking cash out might increase the risk of being “upside down” on the loan — owing more than the car is worth. NerdWallet recommends that you don't take cash out unless you made a large down payment and suddenly need money for an emergency.

Reviewing the results

If you qualify for a lower interest rate and keep the same loan term, you'll get a lower monthly payment. In some cases, the monthly payment won’t seem to drop very much. However, take a look at the total amount you’d save in interest. Over time it may add up to a lot.

Auto loans usually don't have prepayment penalties, and lenders usually don’t charge application or origination fees, though there may be other relatively small fees associated with transferring your loan. If refinancing would save you money or take the strain off your finances, it could be worth it.

Moving forward

Most banks and many credit unions offer loans for auto refinancing. NerdWallet also lists online lenders that provide refinancing loans. Some of the companies are aggregators that send your loan application to a number of lenders. This makes it easy to compare interest rates and terms from multiple lenders, an essential step in finding the best new loan.