What is auto loan refinancing?

Auto loan refinancing replaces your existing car loan with a new one—ideally at a lower interest rate, a different term, or both. The new lender pays off your remaining balance, and you make payments on the new loan. Most people refinance to reduce their monthly payment, cut total interest, pay off faster, or balance these goals based on their budget.

Refinancing does not change your car; it changes the financing. If market rates are lower than when you first borrowed, or if your credit score and debt-to-income ratio have improved, a refinance could be cheaper over the remaining life of your loan. However, fees and a longer term can offset gains, so it’s important to model the full picture.

When refinancing makes sense

• Rates have fallen since you took the original loan.
• Your credit has improved (higher score, fewer delinquencies, lower utilization).
• You want a different term to either lower monthly payments or finish sooner.
• You financed through a dealer at a high rate and can now shop banks or credit unions.
• Your income changed and you need a more manageable payment for a period of time.

How to use this calculator

Gather your statement for the remaining balance, current APR, and months left. Enter the new APR and term from a refinance quote. Add reasonable fees such as origination, title transfer, and state filing fees—then decide whether to pay them upfront or add them to the new loan. If you plan to pay extra each month on the new loan, specify that under Advanced options.

1. Enter Remaining loan balance, Current APR, and Remaining term.
2. Enter New APR and New term. Check Keep same payoff date to lock the new term to your remaining term.
3. Enter Refinance fees and choose whether to add them to the loan or pay upfront.
4. Optionally add an Extra monthly payment to accelerate payoff after refinancing.
5. Review the results: monthly payments, total interest, break-even, and lifetime savings.

How the math works

For a monthly interest rate r, term n, and principal P, the amortized payment is M = P × r / (1 − (1 + r)−n) when r > 0, or M = P / n when r = 0. Your current loan’s remaining total payments equal the monthly payment times the months left. Total interest is total payments minus the remaining principal. For the refinance, if fees are financed, they increase the principal; if not, they appear as an upfront cost. Monthly savings is the difference between the old and new payments (excluding any voluntary extra). Break-even occurs when cumulative monthly savings offset the upfront cost. Lifetime savings equals the current loan’s remaining total payments minus the refinanced loan’s total payments, after considering fees.

Pros and cons

Pros

• Lower APR can reduce both monthly payment and total interest.
• Flexible terms can better match your budget or goals.
• Option to roll fees into the loan if cash is tight.
• Extra payments can speed up payoff and increase savings.

Cons

• Extending the term may increase total interest even if the payment drops.
• Fees reduce savings; break-even may be far out if savings are small.
• Vehicle age, mileage, and credit can limit refinance offers.
• Hard inquiries and new accounts can temporarily impact credit.

FAQs

Does refinancing affect my credit? Yes. A hard inquiry and a new account can cause a small, temporary drop. On-time payments help over time.

Can I refinance if I’m upside down? Sometimes. Lenders may cap loan-to-value. Rolling negative equity forward can raise total cost.

Is there a prepayment penalty? Many auto loans do not have one, but always verify your contract.

How soon can I refinance? Some lenders allow it within months; others want more payment history.

What fees should I expect? Origination, title transfer, lien recording, and sometimes state taxes or document fees.

Disclaimers

This tool is for education and planning only and is not financial advice. Results depend on your inputs and assumptions. Offers and eligibility vary by lender. Review official disclosures before signing any agreement.