Should you refinance your car loan?

Should you refinance your car loan?

There are many financial calculators that you can use to find out if you can save money by doing a refinance on your home loan, but not many that focus on the savings of a refinance on a car loan. Mortgage refinance calculators will allow you to put in your current interest rate and your new perdicted interest rate as well as closing costs and points. Throw all those numbers in the magic calculator hit the submit button and it will tell you how long you will have to keep your mortgage to break even on the refinace.

Car and auto loans however are usually only financed for three to six years so is it possible to save much money when you refinace your car loan? Without doing much math I’m going to guess you will obviously save money, but is it enough to refinance? c

Let’s solve this problem with an example. Let’s assume you take out an car loan for $20,000 on a five year term with a rate at 7.5%. Your monthly payment will be $400 per month. You pay the monthly minimum payment for one year and find an interest rate two points lower at 5.5%. Should you refinance your car loan? If you were to continue to pay the payment of $400 for the full term you would pay a total of $24,045. If you decide to refinance after one year you will refinance $16,574 for 48 months at 5.5%. Refinance fees vary from bank to bank but we will assume $200 as an estimate bringing the total to $16,774.

Before you refinance your car loan, you will pay a total of $4,800 for the first year then an additional $18,725 for the next four years on the new refinanced car loan. This brings the total to $23,535 a savings of $510 over 5 years. You will have saved $102 per year by doing a refinance on the loan? Worth your time? Many would say no but that’s for you to decide.