Car refinancing involves replacing your existing auto loan with a new one, ideally with better terms. The primary goal is often to secure a lower interest rate, which can significantly reduce the total cost of your loan over time and potentially lower your monthly payments.
How the Car Refinance Calculator Works
This calculator helps you estimate the potential financial benefits of refinancing your car loan. It compares your current loan's estimated monthly payment and total interest paid with what your new loan might entail, assuming a lower interest rate.
The Math Behind the Savings
The calculator uses the standard loan amortization formula to determine monthly payments. The formula for calculating the monthly payment (M) of a loan is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P is the principal loan amount (your current loan balance).
i is the monthly interest rate (annual rate divided by 12).
n is the total number of payments (loan term in months).
To calculate the savings, the calculator performs the following steps:
Calculate Current Monthly Payment: It determines the monthly payment for your existing loan using the formula above with your current interest rate.
Calculate New Monthly Payment: It calculates the monthly payment for the proposed refinanced loan using the same formula but with the new, lower interest rate.
Calculate Monthly Savings: The difference between the current and new monthly payments (Current Payment – New Payment).
Calculate Total Interest Paid (Current): Sum of (Monthly Payment * Number of Months) – Principal Loan Balance.
Calculate Total Interest Paid (New): Sum of (New Monthly Payment * Number of Months) – Principal Loan Balance.
Calculate Total Savings: The difference between the total interest paid on the current loan and the total interest paid on the new loan. This is often a more significant figure than just monthly savings.
When Should You Consider Refinancing?
Improve Credit Score: If your credit score has improved since you took out the original loan, you may qualify for a lower interest rate.
Falling Interest Rates: If market interest rates have dropped significantly, refinancing can help you take advantage of the lower rates.
Shorter Loan Term: You might refinance to a shorter term to pay off your car faster, even if the interest rate reduction isn't huge.
Change Loan Purpose: In some rare cases, you might want to change from a loan to a lease, or vice versa, though this is less common with refinancing.
Important Considerations
Fees: Be aware of any origination fees, title transfer fees, or other costs associated with refinancing, as these can offset your savings.
Loan Term Extension: Ensure that refinancing to a lower interest rate doesn't significantly extend your loan term, which could increase the total interest paid despite a lower rate.
Check Your Current Loan: Some auto loans have prepayment penalties. Ensure your current loan agreement allows for early payoff without penalty.
Use this calculator as a starting point to understand potential savings. Always get personalized quotes from lenders to get accurate rates and loan terms.
function calculateLoanPayment(principal, annualRate, termMonths) {
if (principal <= 0 || annualRate < 0 || termMonths <= 0) {
return 0; // Invalid input
}
var monthlyRate = annualRate / 100 / 12;
var numPayments = termMonths;
if (monthlyRate === 0) {
return principal / numPayments;
}
var monthlyPayment = principal * (monthlyRate * Math.pow(1 + monthlyRate, numPayments)) / (Math.pow(1 + monthlyRate, numPayments) – 1);
return monthlyPayment;
}
function calculateRefinanceSavings() {
var currentLoanBalance = parseFloat(document.getElementById('currentLoanBalance').value);
var currentInterestRate = parseFloat(document.getElementById('currentInterestRate').value);
var newInterestRate = parseFloat(document.getElementById('newInterestRate').value);
var remainingLoanTerm = parseInt(document.getElementById('remainingLoanTerm').value);
// Input validation
if (isNaN(currentLoanBalance) || currentLoanBalance <= 0 ||
isNaN(currentInterestRate) || currentInterestRate < 0 ||
isNaN(newInterestRate) || newInterestRate < 0 ||
isNaN(remainingLoanTerm) || remainingLoanTerm = currentInterestRate) {
document.getElementById('monthlySavings').innerText = "$0.00 (No Savings)";
document.getElementById('totalSavings').innerText = "$0.00 (No Savings)";
return;
}
var currentMonthlyPayment = calculateLoanPayment(currentLoanBalance, currentInterestRate, remainingLoanTerm);
var newMonthlyPayment = calculateLoanPayment(currentLoanBalance, newInterestRate, remainingLoanTerm);
var monthlySavings = currentMonthlyPayment – newMonthlyPayment;
var totalSavings = monthlySavings * remainingLoanTerm;
// Format savings to two decimal places
var formattedMonthlySavings = monthlySavings.toFixed(2);
var formattedTotalSavings = totalSavings.toFixed(2);
document.getElementById('monthlySavings').innerText = "$" + formattedMonthlySavings;
document.getElementById('totalSavings').innerText = "$" + formattedTotalSavings;
}
// Optional: Initialize sliders and their display values on load if using ranges
// For number inputs, this part is not strictly needed but can set default values
document.addEventListener('DOMContentLoaded', function() {
// Set initial values if needed, or var HTML defaults handle it
// calculateRefinanceSavings(); // Uncomment if you want to show initial calculation
});