A lower rate with the same payoff date
Refinancing $22,000.00 from 9.5% to 6.5% while keeping the same 4 years lowers the payment by $30.98 a month. After the $300.00 fee it saves $1,187.04 in total and is ahead from month 6. Keeping the payoff date is the cleanest way to see what the lower rate alone is worth.
A lower payment is not always a saving
A longer loan term can lower the monthly payment but add interest over the life of the loan (CFPB: comparing auto loan offers). Stretching the same refinance to 6 years cuts the payment to $369.82, but over the whole loan it costs $396.90 more and is ahead months 6–52 only. At 8.5% over 6 years, the payment drops by $161.58 a month, yet the refinance is never ahead within the loan terms and costs $1,930.93 more in total.
If you sell or trade in the car early
Most people sell or trade in a car before the loan ends, so the calculator compares both options at each point: payments made so far, plus the balance you would still have to pay off from the sale, plus fees paid in cash. A longer new term leaves a larger balance, which matters if the car is worth less than you owe. Our auto loan calculator shows how negative equity rolls into a new loan.
Fees and prepayment penalties
Refinancing can involve lender fees and state title or registration fees. Some contracts also charge a penalty for paying the loan off early; your Truth in Lending disclosure says whether one applies (CFPB: prepayment penalties). Adding $500.00 of fees and penalty to the example loan instead of paying them in cash raises the new payment to $533.59, with total savings of $917.88 and a true break-even from month 11.
How the comparison is calculated
- Each loan's payment is the fixed-rate payment
P × r × (1 + r)n ÷ ((1 + r)n − 1), where r is the annual rate ÷ 12 and n is the number of months: the same formula as our loan payment calculator. - The new loan starts from the payoff amount, plus fees and penalty if you add them to the loan.
- Both loans are amortized month by month. For every month, each option's cost is payments made so far + balance still owed + costs paid in cash.
- Refinancing is ahead in any month where its cost is lower. The same method powers our mortgage refinance calculator.
Amounts are calculated at full precision and rounded to cents only for display.
What this calculator does not include
- Insurance, taxes, GAP coverage, extended warranties and other add-on products, and any refund of them when the old loan closes.
- Cash-out refinancing, changes in the car's value and the costs of selling it.
- Rates stay fixed, with monthly payments and interest at the annual rate ÷ 12. Lenders may calculate interest daily, so their figures can differ slightly.
- No rates are assumed for any lender. Enter the rate and costs from your own offer. Results are estimates, not a loan offer or financial advice.
Methodology and testing
Both loans use the same tested amortization engine as every loan calculator on this site. Automated tests check the payments, total savings and true break-even against an independent month-by-month simulation for 300 random offers, including longer terms, financed costs and prepayment penalties. How we build and test calculators.
Sources
- How do I compare auto loan offers? What should I look at besides the monthly payment?, Consumer Financial Protection Bureau. A longer loan term can mean a lower monthly payment but more interest over the life of the loan.
- Can I prepay my loan at any time without penalty?, Consumer Financial Protection Bureau. Whether a loan can be paid off early without a penalty depends on the contract and state law; the Truth in Lending disclosure says whether a prepayment penalty applies.
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