Posted onSeptember 19, 2022
Auto Refinance Calculator – Forbes Advisor – Forbes
If you took out an auto loan to buy your car, you might be thinking about refinancing. Refinancing can help you get a better interest rate to save money or pay off your loan faster by reducing the repayment period. Use this auto refinancing calculator to determine whether now is the right time for you to refinance and how much you could save.
How to Use This Auto Refinancing Calculator
You’ll first need to input your current loan amount, the interest rate and the number of months left on the loan. Then, you’ll need to input the total amount you would like to refinance and for how many months. You can also estimate a refinance rate based on the rate you’re likely to be approved for or select the default rate to get an idea.
The calculator results will give you a rough estimate of your new monthly payment and what you’ll pay in interest if you refinance your existing auto loan. Keep in mind that exact results are based on factors like the type of vehicle you’re refinancing, the lender and your personal financial profile.
What You Need to Use This Calculator
To get started, you’ll need to gather the following information for the calculator to most-accurately determine if refinancing your auto loan is the best course of action.
Your current loan information
- Loan amount: This is the total amount you borrowed from your first lender.
- Current interest rate: The interest rate on your existing loan.
- Length of current loan: The terms, or repayment period, of your current car loan in total months.
- Balance of current loan: This is how much you still owe on your existing car loan.
- Months left on current loan: How much time is left before your car loan matures.
New loan information
- Refinanced loan amount: This is the amount you want to borrow to pay off your existing car loan.
- New loan term: If your goal is to pay off the new car loan faster, input fewer months than you have remaining on your existing loan. It will also mean you pay less in interest. If you want to lower your monthly car payments, you can extend the loan for more months, but you will pay more in interest over the life of the loan.
- New interest rate: Depending on your credit history, and if it has gotten better since you were approved for the first loan, you might be eligible for a lower interest rate.
What Is an Auto Refinance?
When you decide to refinance your auto loan, you apply for a new loan with different terms that replace your original loan. So you’re basically swapping out your old loan for a new one with ideally lower monthly payments or a better rate. This can help you free up cash on a monthly basis or put more money in your pocket over the long term.
How to Refinance Your Car Loan
Here are the basic steps to refinancing your car loan:
1. Prepare Documentation
You’ll have to submit information about both your car and your current financing, as well as personal information like your legal name, address, Social Security number and proof of car insurance. You may also need to provide recent pay stubs or W-2s to assure the lender that you can make the monthly payments.
2. Choose a Refinancing Lender
You can choose to refinance with your current lender or shop around with different lenders to compare their fees, interest rates and special offers. You can often leverage the various offers you receive to get the best rate and terms from your preferred lender.
Related: Best Auto Loan Refinance Lenders
3. Submit an Application
The auto loan refinance process usually takes less time than a mortgage refinance, like less than two weeks from start to finish.
The lender will conduct their own appraisal of the car. If the value is too low, you might not qualify. The lender will also calculate the car’s loan-to-value (LTV) ratio, which generally needs to be below 125% of the car’s value to qualify. They’ll also run a credit check, as well as verify your employment and income.
It’s also worth remembering that when you apply for an auto loan refinance, it will show up on your credit report as a hard inquiry. A hard inquiry will impact your credit score, so make sure to submit all the applications within 14 to 45 days of each other. That way they will only count as one inquiry.
4. Get Approved and Finalize the Loan
Once you’re approved, compare the various offers carefully. A loan with a longer lifespan will come with a higher interest rate and lower monthly payments. A loan with a shorter term will have the opposite: Higher monthly payments and a lower interest rate. Look at your budget and decide how much you can comfortably afford each month.
After you select the lender, you’ll have to finalize the car loan. Your new lender is responsible for paying off the loan balance from the old lender, but you should confirm that it goes through correctly.
5. Keep Up With Your Payments
Once the loan is finalized, it’s important not to fall behind on your existing car loan payments during the transfer process. Once the first lender is paid off by the new lender, the original lender should refund any extra payments you made during that window.
Once the loan is paid off, you can start making payments to your new lender. Consider setting up automatic payments so you don’t have to worry about remembering your new due date.
When You Should Refinance a Car Loan
Here are a few scenarios where it would make sense to refinance:
- Your credit has improved. You might be eligible for a better auto loan rate if your credit score has improved significantly since you first took out the loan. Or you can refinance using a co-signer with a strong credit history to improve your chances of getting a better rate.
- You want a lower monthly payment. Refinancing to get a lower payment can be a good option If you’re struggling to keep up with debt payments, and need some extra room in your budget. Remember that if you choose a longer term to get that lower payment, you’ll pay more in interest over the length of the loan.
- Interest rates are lower. Another reason to refinance is if you have a high interest rate on your current car loan and interest rates are now lower.
When You Shouldn’t Refinance a Car Loan
On the other hand, these are a few situations where refinancing might not make sense:
- You owe too little or too much on your current vehicle. You shouldn’t refinance your car loan if you have a low outstanding balance on your existing car loan. It also doesn’t make sense to refinance if you owe more on your current vehicle than it’s worth—which means you have negative equity.
- You’ll have to pay a prepayment penalty. It’s also not a good idea if your current lender has a prepayment penalty in your loan agreement that costs more than any potential savings.
- You’re applying for another major loan. It’s not a good idea to refinance your car loan if you’re also applying for another loan, like a mortgage. Your credit score would be negatively impacted, making it hard for you to get the loan, or you could be saddled with a higher interest rate.
It’s important to remember that the longer you take to repay your loan, the more interest you’ll have to pay over time. So use the auto refinance calculator to see how much refinancing will save you before making your final decision.
Is It a Good Idea to Refinance a Car Loan?
It’s only a good idea to refinance your car loan if the results show you’ll save money. This can either be by reducing the loan terms so you pay off your car loan sooner and avoiding paying interest over the long term; or by lowering your current interest rate.
Some lenders will also offer discounts or specials to entice you to refinance your car loan through them. This often happens when a bank is trying to attract more customers, like offering a lower interest rate if you set up automatic monthly payments by opening a bank account, too. You can compare different lenders to see who might be offering a better deal.