How the comparison works
Current payment = Balance × r ÷ (1 − (1 + r)^−n)
New payment = (Balance + Fees) × r₂ ÷ (1 − (1 + r₂)^−n₂)
Savings = Current payment × Months left − New payment × New term
The months to earn back the fees are the fees divided by how much lower the new payment is.
Example
You owe $20,000 at 10% with 48 months left, a payment of $507.25. A lender offers 6.5% for 48 months with $250 in fees.
- New payment: $480.23, which is $27.02 less each month
- Total left to pay: $23,051 instead of $24,348, a saving of $1,297
- The fees are earned back in about 10 months
Stretching the same offer to 60 months drops the payment to $396.21, but the total saving shrinks to $575 because you pay interest for a year longer. A lower rate saves money; a longer term mostly moves the cost into the future.
When refinancing a car makes sense
- Your credit score has gone up since you bought the car.
- Market rates have dropped, or you took dealer financing without shopping around.
- You need a lower payment and accept paying more in total to get it.
When it may not
- The loan is nearly paid off, so most of the interest is already behind you.
- The car is old or has high mileage. Many lenders set limits on age and miles.
- You owe more than the car is worth, which makes approval harder.
- Your current loan has a prepayment penalty larger than the savings.
Frequently asked questions
How soon can I refinance a car loan?
There is usually no legal waiting period, but many lenders want to see that the title has transferred and a few months of on-time payments, often 6 to 12 months after purchase.
Does refinancing a car hurt your credit?
Applying causes a hard inquiry, which may lower your score slightly for a short time. Credit scoring models usually count several auto loan inquiries within a short window, often 14 to 45 days, as one, so shop rates within a couple of weeks.
What fees come with auto refinancing?
Common costs are a title transfer or lien fee charged by the state and, with some lenders, an origination fee. Many lenders charge nothing beyond state fees. Enter the total in the calculator.
Should I choose a longer term when I refinance?
Only if you need the lower payment. A longer term usually means more total interest even at a lower rate. Compare the total savings figure, not just the monthly payment.
Last reviewed: 2026-10-31