How do I calculate whether refinancing will save me money?
Refinancing saves money if your total cost after refinancing is lower than what you would pay by keeping your current loan. Start by comparing the remaining balance, remaining interest, new interest rate, loan term, and refinance fees.
Here's what you need to know:
| Step | What to calculate |
|---|---|
| 1 | Remaining payments on your current loan |
| 2 | Total interest left on your current loan |
| 3 | New monthly payment after refinancing |
| 4 | Total interest on the new loan |
| 5 | Fees for the refinance |
To check the savings, use this simple formula:
Money saved = Current remaining loan cost - New loan cost - Refinance fees
A positive number means refinancing saves money. A negative number means it costs more.
Here is a practical example. Say you still owe $18,000 on your current auto loan. You have 42 months left at 9.5% APR. If you keep the loan, you might pay about $3,800 in future interest. Now imagine you refinance into a new 42-month loan at 6.5% APR with $600 in fees. Your new interest might be about $2,550. Your savings would be about $650 after fees.
Use these steps to get a more exact answer:
- Find your current loan payoff amount.
- Write down your current APR and remaining months.
- Get refinance quotes with the same loan term and with a longer term.
- Compare total interest, not just the monthly payment.
- Add all fees, including application, title, and transfer fees.
A lower monthly payment does not always mean you save money. If you stretch the loan term, you may pay less each month but more over time. That can erase the benefit of a lower rate.
Refinancing usually helps when you can cut your APR by at least 1% to 2%, keep a similar loan term, and avoid high fees. It also helps if your credit score improved since you got the original loan.
Watch for these red flags:
- The new term is much longer than your current one.
- Fees are high enough to eat up the savings.
- Your car is worth less than you owe.
- Your current loan has a prepayment penalty.
If you want a fast check, ask for a refinance quote and compare the total payoff side by side. Sidekick can help you estimate the break-even point so you can see how long it takes for savings to beat the fees.
The best refinance deal lowers your total cost, not just your payment. If the math shows clear savings after fees, refinancing makes sense.