So you’ve got an existing auto loan and you’re thinking of refinancing. Is it worth the effort or are you better off waiting? To help consumers make a more informed choice, we’ve developed a comprehensive auto loan refinance calculator that helps them visualize exactly their savings and whether its worth the effort to try to refinance.
Using the Auto Loan Refinance Calculator.
|10 day payoff
# of remaining months / payments:
APR (in %)
Current monthly payments:
New monthly payment:
What you’ll need to use the Auto Loan Refinance Calculator.
In order to use the calculator you’ll need to get a few documents in order so that you can ensure the math works out. Firstly you’ll need to get:
- Your 10 day payoff Amount: This is the remaining balance left on your loan. When your loan is refinanced, this is the amount that the new loan will be issued for. Typically your lender will have this information available online in the same place where you can check account balances and make payments.
- The current “Book Value” of your Car: The new lender will be lending based upon the collateral of your car. For refinancing to even be possible, your cars outstanding loan balance has to be at or near the current book value of the car. To check the value you can use the Kelly Blue Book Trade-In Price as a worst case scenario. Most Credit Unions lend based on the Retail Value found here, but you’ll want to be conservative initially.
- Your current APR: To see if there’s any money to be saved, you’ll need to know the current APR (annual percentage rate) of the loan.
- Your Final Loan Payment Date: When you originally received your auto loan, you likely had a 48-84 month term. But since some time has passed since then, you’ll want to verify how many remaining months you have on your loan. This remaining time will give a sense of how much interest you’re likely to save (the longer the time left, the more likely refinancing is likely to save you money).
- (Optional) Ideally get a current Credit Report: Before applying to every financial institution, its probably worthwhile to check your own credit score.
When is Refinancing Likely to Make Sense?
Refinancing is most likely to be beneficial in circumstances where:
- You received your initial financing at a dealership. If you initially received your loan at a dealership, chances are there’s an opportunity for savings. Dealerships make money on financing products, and often the interest rates are “marked up” in order for the dealer to profit. We’ve written about it in detail here, but if you’re one of the many customers who financed the car at the dealership the chances are better that you can save money by refinancing your auto loan.
- The remaining time on the loan is still large (>24 months). If you’ve only got 1 month left on your auto loan, its unlikely that refinancing is worth the effort. Similarly, the longer time period you have, the longer you’ll be making interest payments.
- Your credit has Improved since you initially financed the vehicle. As you pay off your auto loan, its likely your FICO score improves and your auto-specific credit score improves as well. A customer who has paid 12-18 months of their auto loan is far less likely to default, and so this good payment history will often help in lowering your interest rate should you choose to refinance. Conversely, if you’ve missed or been late with a payment, its likely your interest rate on the next loan will be higher.
- The Federal Reserve Interest Rate has Declined. Borrowing rates for auto loans are highly correlated to the interest rates that banks can borrow money for. If interest rates start to rise globally, lenders typically raise the rates they will charge the end borrower.
A lower Payment does not mean better Terms
A typical “Trap” that customers fall into when looking at refinancing is looking at the payment amount rather the full picture. You should consider:
- Total Loan Length: How long your new refinanced loan will be
- APR: The new APR compared to your previous APR
- Total Interest Expense: The total interest you’d end up paying over the life of the loan
A good means to “compare” refinancing terms to your current loan is to select the same length of loan (so if you have 48 months remaining to pay, set your refinanced loan duration to 48 months as well).