A worked example
You owe $20,000 with 40 months left at 11%. A credit union offers 7%, with $150 in fees.
| Keep current loan | Refinance, 40 months | Refinance, 60 months | |
|---|---|---|---|
| Monthly payment | $599.52 | $562.05 | $396.02 |
| Total you pay, incl. fees | $23,981 | $22,632 | $23,911 |
| Saving | - | $1,349 | $69 |
Keeping the same 40-month term saves about $1,349, and the $150 in fees is paid back by the lower payment in about 4 months.
Stretching to 60 months drops the payment by over $200, which feels like a big win, but the extra 20 months of interest wipe out almost all the saving: just $69 over the life of the loan.
When refinancing is worth it
- Your credit score has improved since you took the loan.
- Rates have fallen, or the dealer’s loan was marked up above what you qualified for.
- There is plenty of time and balance left; refinancing in the last year saves little.
- You keep the term the same or shorter.
Costs to include
- New loan fees, such as application or title transfer fees.
- An early repayment fee on your current loan. In the UK and EU it is capped at 1% of the amount repaid (0.5% with a year or less left). In India, fixed-rate car loans often carry 2% to 5%. In the US and Canada most car loans have none.
Run your own numbers
The refinance calculator compares your current loan with an offer, includes both kinds of fees, and shows the break-even point in months.
Try it yourself
Open the refinance calculator and enter your own loan. It works in 13 currencies and follows each country’s loan rules.