Refinancing a personal loan involves taking out a new loan to pay off an existing one. The primary goals of refinancing are often to secure a lower interest rate, reduce monthly payments, or shorten the loan term. This calculator helps you estimate the potential savings you could achieve by refinancing your current personal loan.
How It Works: The Math Behind the Savings
The calculator uses standard loan amortization formulas to determine the total interest paid on both your original loan and the proposed refinanced loan. The difference in total interest paid, and potentially the total amount repaid, represents your savings.
$n$ = Total Number of Payments (Loan Term in Months)
Total Interest Paid Calculation:
Total Interest = (Monthly Payment * Number of Payments) – Principal Loan Amount
The calculator computes the total interest paid for your current loan scenario and the new loan scenario. If the new loan has a lower total interest paid over its term, the difference is considered your savings. It also considers the possibility of adjusting the loan amount (e.g., consolidating other debts or paying down some principal) and the loan term.
When Should You Consider Refinancing?
Lower Interest Rates Available: If market interest rates have dropped significantly since you took out your original loan, or your credit score has improved, you might qualify for a much lower Annual Percentage Rate (APR).
Reduce Monthly Payments: If you need more breathing room in your monthly budget, refinancing into a loan with a lower interest rate or a longer term (or both) can lower your payment. Be mindful that extending the term will likely increase the total interest paid over the life of the loan.
Shorten Loan Term: If you can afford a higher monthly payment, refinancing into a loan with a lower interest rate and the same or shorter term can save you a significant amount on interest and help you become debt-free faster.
Consolidate Debt: Sometimes, refinancing a personal loan can be part of a larger strategy to consolidate multiple debts into a single, more manageable payment.
Important Considerations:
Before refinancing, always compare the new loan's APR, fees (origination fees, closing costs), and total repayment cost against your current loan. Make sure the savings outweigh any associated costs.
function calculateMonthlyPayment(principal, annualRate, termInMonths) {
var monthlyRate = (annualRate / 100) / 12;
var numberOfPayments = termInMonths;
if (monthlyRate <= 0 || numberOfPayments <= 0) {
return principal; // Handle cases with 0 interest or term
}
var monthlyPayment = principal * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
return monthlyPayment;
}
function calculateTotalInterest(principal, annualRate, termInMonths) {
var monthlyPayment = calculateMonthlyPayment(principal, annualRate, termInMonths);
var totalPaid = monthlyPayment * termInMonths;
var totalInterest = totalPaid – principal;
return totalInterest;
}
function calculateRefinanceSavings() {
var originalLoanAmount = parseFloat(document.getElementById("originalLoanAmount").value);
var originalInterestRate = parseFloat(document.getElementById("originalInterestRate").value);
var originalLoanTerm = parseInt(document.getElementById("originalLoanTerm").value);
var refinanceLoanAmountInput = document.getElementById("refinanceLoanAmount").value;
var refinanceLoanAmount = refinanceLoanAmountInput ? parseFloat(refinanceLoanAmountInput) : originalLoanAmount;
var refinanceInterestRate = parseFloat(document.getElementById("refinanceInterestRate").value);
var refinanceLoanTerm = parseInt(document.getElementById("refinanceLoanTerm").value);
var resultDiv = document.getElementById("result-value");
var messageDiv = document.getElementById("result-message");
// Input validation
if (isNaN(originalLoanAmount) || originalLoanAmount <= 0 ||
isNaN(originalInterestRate) || originalInterestRate < 0 ||
isNaN(originalLoanTerm) || originalLoanTerm <= 0 ||
isNaN(refinanceInterestRate) || refinanceInterestRate < 0 ||
isNaN(refinanceLoanTerm) || refinanceLoanTerm <= 0 ||
isNaN(refinanceLoanAmount) || refinanceLoanAmount 0) {
resultDiv.textContent = "$" + absoluteSavings.toFixed(2);
messageDiv.textContent = "By refinancing, you could save approximately $" + absoluteSavings.toFixed(2) + " in interest over the life of the loan. ";
messageDiv.textContent += `Your original monthly payment was $${originalMonthlyPayment.toFixed(2)} (over ${originalLoanTerm} months). `;
messageDiv.textContent += `The new loan's estimated monthly payment is $${refinanceMonthlyPayment.toFixed(2)} (over ${refinanceLoanTerm} months).`;
} else if (savings < 0) {
var additionalCost = Math.abs(savings);
resultDiv.textContent = "-$" + additionalCost.toFixed(2);
messageDiv.textContent = "Refinancing under these terms would cost approximately $" + additionalCost.toFixed(2) + " more in interest. ";
messageDiv.textContent += `Your original monthly payment was $${originalMonthlyPayment.toFixed(2)} (over ${originalLoanTerm} months). `;
messageDiv.textContent += `The new loan's estimated monthly payment is $${refinanceMonthlyPayment.toFixed(2)} (over ${refinanceLoanTerm} months).`;
} else {
resultDiv.textContent = "$0.00";
messageDiv.textContent = "There is no estimated interest savings with these refinance terms. ";
messageDiv.textContent += `Your original monthly payment was $${originalMonthlyPayment.toFixed(2)} (over ${originalLoanTerm} months). `;
messageDiv.textContent += `The new loan's estimated monthly payment is $${refinanceMonthlyPayment.toFixed(2)} (over ${refinanceLoanTerm} months).`;
}
}