Refinancing an auto loan involves replacing your existing car loan with a new one, typically with different terms and potentially a lower interest rate. This process can offer significant financial benefits, allowing you to save money over the life of the loan and potentially lower your monthly payments. Our Auto Loan Refinance Calculator helps you estimate these potential savings.
How Refinancing Works
When you refinance, a new lender pays off your old loan, and you begin making payments to the new lender. The primary motivations for refinancing are:
Lower Interest Rate: If your credit score has improved since you first took out the loan, or if market interest rates have decreased, you may qualify for a lower Annual Percentage Rate (APR). This is the most common and impactful reason to refinance.
Shorter Loan Term: You might opt for a shorter term to pay off the loan faster, though this usually means higher monthly payments.
Longer Loan Term: If you need to lower your monthly payments, you can choose a longer term, but be aware this will increase the total interest paid over time.
Change Lender: Sometimes, you may simply want to switch to a different bank or credit union that offers better service or specific loan products.
How the Calculator Works
Our calculator uses standard loan amortization formulas to compare your current loan's total interest cost with the total interest cost of a potential new loan. Here's a breakdown of the math:
Calculating Monthly Payment (M)
The formula for calculating the monthly payment of a loan is:
n = Total Number of Payments (Loan Term in Months)
Calculating Total Interest Paid
Once the monthly payment is calculated, the total interest paid is determined by:
Total Interest Paid = (Monthly Payment * Total Number of Payments) – Principal Loan Amount
Estimating Refinance Savings
The calculator first determines the total interest you would pay on your current loan based on its remaining balance, interest rate, and term. Then, it calculates the total interest you would pay on a new loan with the specified new interest rate and term. The savings are the difference between the total interest of the current loan and the total interest of the new loan.
Savings = (Total Interest on Current Loan) – (Total Interest on New Loan)
If the new loan has a longer term but a significantly lower rate, the monthly payment might decrease, but the total interest paid could be higher. Conversely, a higher rate with a shorter term would increase monthly payments and total interest. Our calculator focuses on the difference in total interest paid, providing a clear picture of potential long-term savings.
When to Consider Refinancing
Your credit score has significantly improved since you took out the original loan.
Market interest rates have dropped substantially.
Your current loan has high fees or unfavorable terms.
You want to adjust your monthly payment to better fit your budget (though consider the impact on total interest).
Always compare the total cost of the new loan (including any fees) against the remaining cost of your current loan to ensure refinancing is truly beneficial.
function calculateLoanInterest(principal, annualRate, termMonths) {
var monthlyRate = annualRate / 100 / 12;
var numberOfPayments = termMonths;
if (monthlyRate === 0) {
return principal * (numberOfPayments / 12); // Simple interest if rate is 0
}
var monthlyPayment = principal * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
if (isNaN(monthlyPayment) || !isFinite(monthlyPayment)) {
return NaN; // Indicate an invalid calculation
}
var totalPaid = monthlyPayment * numberOfPayments;
var totalInterest = totalPaid – principal;
return totalInterest;
}
function formatCurrency(amount) {
return "$" + Number(amount).toFixed(2).replace(/(\d)(?=(\d{3})+(?!\d))/g, "$1,");
}
function calculateRefinance() {
var currentLoanBalance = parseFloat(document.getElementById("currentLoanBalance").value);
var currentInterestRate = parseFloat(document.getElementById("currentInterestRate").value);
var currentRemainingTerm = parseInt(document.getElementById("currentRemainingTerm").value);
var newInterestRate = parseFloat(document.getElementById("newInterestRate").value);
var newLoanTerm = parseInt(document.getElementById("newLoanTerm").value);
var savingsExplanationElement = document.getElementById("savings-explanation");
var resultValueElement = document.getElementById("result-value");
savingsExplanationElement.textContent = ""; // Clear previous explanation
resultValueElement.textContent = "$0.00"; // Reset result
if (isNaN(currentLoanBalance) || currentLoanBalance <= 0 ||
isNaN(currentInterestRate) || currentInterestRate < 0 ||
isNaN(currentRemainingTerm) || currentRemainingTerm <= 0 ||
isNaN(newInterestRate) || newInterestRate < 0 ||
isNaN(newLoanTerm) || newLoanTerm 0) {
resultValueElement.textContent = formatCurrency(potentialSavings);
savingsExplanationElement.textContent = "Refinancing could save you approximately " + formatCurrency(potentialSavings) + " in interest over the life of the loan.";
resultValueElement.style.color = '#28a745'; // Success green
} else if (potentialSavings < 0) {
resultValueElement.textContent = formatCurrency(Math.abs(potentialSavings));
savingsExplanationElement.textContent = "This refinance scenario may increase your total interest paid by approximately " + formatCurrency(Math.abs(potentialSavings)) + ". Consider different terms or rates.";
resultValueElement.style.color = '#dc3545'; // Danger red for increased cost
} else {
resultValueElement.textContent = "$0.00";
savingsExplanationElement.textContent = "No significant savings are estimated with these terms.";
resultValueElement.style.color = '#6c757d'; // Neutral grey
}
}