How this calculator works
Refinancing a car loan replaces the outstanding balance with a new loan at a new rate and term. Because the balance stays the same, the saving comes from a lower rate or from fees, and the term decides how long the new rate applies. Keeping the same term makes the comparison purely about the rate. Extending the term can lower the payment even without a rate cut, but it usually raises total interest. The break-even figure divides the fees by the monthly saving to show how many months are needed before the refinance pays for itself. Prepayment penalties, gap insurance changes and any deposit the new lender requires are not included.
Formula
i = rate / 12; A = P × i / (1 - (1 + i)^(-n)) for the current and the new loan. Interest = n × A - P. Monthly saving = current payment - new payment. Break-even months = fees / monthly saving. Total saving = current interest - new interest - fees.
Worked example
An $18,000 balance at 8.9% with 48 months left costs $447.08 a month and $3,459.67 of interest. Refinancing at 6.4% for 48 months costs $426.04 a month and $2,449.89 of interest. The monthly saving is $21.04, $250 of fees are recovered in 11.88 months, and the total saving is $759.78.
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Frequently asked questions
When does refinancing a car make sense?
Usually when your credit has improved since the original loan, or when rates have fallen enough to outweigh the fees. A small rate cut over a short remaining term may not repay the fees at all.
Does the car need to be a certain age?
Lenders often set limits on vehicle age and mileage. A car that is too old may not qualify, and some lenders require a loan-to-value check against the car's current market value.
Can I extend the term to lower the payment?
Yes, but a longer term on a depreciating asset increases the risk of being upside down on the loan and usually raises total interest. Compare the payment with the total saving.
What happens to the existing loan?
The new lender pays it off and registers a new lien. Confirm there is no prepayment penalty and that the old loan is fully discharged, or you could end up paying twice.