How to Calculate Car Refinance Savings

The formula, in one paragraph

Refinancing a car loan is six steps. A car loan payment is the balance, the monthly rate, and the term: see the formula in the box below. The monthly rate is the APR divided by 12, and the total interest is the payment times the term, minus the balance. The saving is the old payment minus the new one, the interest saved is the old interest minus the new interest, the net is the interest saved minus the fees, and the break-even is the fees divided by the saving, rounded up.

Step 1: Find your current payment

Start with the loan you have: the balance left, the APR, and the months left. The balance is the payoff amount, so check your statement for interest accrued. The example uses $20,000 at 9.5% APR with 48 months left. The monthly rate is 9.5% divided by 12, or 0.7917%, and the loan formula gives $502.46 a month.

Step 2: Get the new quote

Get the same three numbers for the loan you are offered: the new APR, the new term, and the fees. The example uses 6.5% over 48 months, with $300 of fees. The monthly rate is 6.5% divided by 12, or 0.5417%, and the loan formula gives $474.30 a month. Ask if the fees are paid out of pocket or rolled into the balance.

Step 3: Work out the monthly saving

Subtract the new payment from the current payment: $502.46 minus $474.30 is $28.16 a month. The yearly saving is the unrounded monthly saving times 12, which is $337.96 a year — 4 cents more than $28.16 times 12. If the new payment is higher, the saving is negative, and the refinance costs more a month.

Step 4: Compare the total interest both ways

The total interest is the payment times the term, minus the balance. On the example, the current total interest is $502.46 times 48 minus $20,000, which is $4,118.21, and the new total interest is $474.30 times 48 minus $20,000, which is $2,766.35. The total interest saved is $1,351.86. The total interest saved is what the fees are paid out of.

Step 5: Subtract the fees

The net saved is the total interest saved minus the fees: $1,351.86 minus $300 is $1,051.86. The fees are added to the cost, not to the new balance: rolled into the new loan, the new payment and the total interest are both higher.

Step 6: Find the break-even months

Divide the fees by the monthly saving, and round up: $300 divided by $28.16 is 10.65 months, rounded up to 11 months. Ten months of saving is $281.64, short of the $300, and 11 months is $309.80. If the fees are $0, there is no break-even: the saving starts at once. If the monthly saving is $0 or negative, there is no break-even either.

Working backwards from a $450 payment

The formula also runs backwards. For a $50 a month saving, the new payment has to fall to $452.46, which needs a new APR of 4.10% (exact 4.0985). For a $450 a month payment the new APR would need to be 3.82% (exact 3.8231). Or keep 6.5% APR and stretch the term: the new term for a $450 a month payment is 51 months (exact 50.98), and for a $400 a month payment it is 59 months (exact 58.47). Or ask about the fees: the most fees for a 12-month break-even is $337.96, and for 6 months $168.98.

The 36-month nuance: a higher payment can still save more

At 36 months the new payment is $612.98 a month, which is $110.52 a month MORE than the current $502.46. But the total interest after refinancing is only $2,067.28, so the total interest saved is $2,050.93 and the net is $1,750.93 — more than the $1,051.86 the 48-month refinance nets. The other way, a 60-month term drops the payment to $391.32 and saves $111.14 a month, but the total interest is $3,479.38, so only $638.83 is saved.

When the numbers are small

At the edges: with a $15,000 balance the payments are $376.85 and $355.72, so the saving is $21.12 a month. With a $30,000 balance they are $753.69 and $711.45, so the saving is $42.25 a month. At 7.5% APR the payment is $483.58 and the saving is only $9.28 a month; at 12% it is $526.68 and the saving is $52.38 a month. With a 0% new APR the new payment is $416.67, the saving is $85.80 a month, and the net is $3,818.21.

What NOT to do

Do not judge by the monthly payment alone: a 60-month term saves $111.14 a month but only $638.83 in total, and a 36-month term costs $110.52 a month more but saves $2,050.93. Do not forget the fees: $1,351.86 saved is $1,051.86 after $300 of fees, and $351.86 with $1,000 of fees and a 36-month break-even. Do not assume a lower APR always saves money: with a 0% current APR the payment is $416.67, so refinancing costs $57.63 a month more. Do not chase a $100 a month saving: even at 0% APR the new payment is $416.67, so the most the saving can ever be is $85.80 a month.

Monthly payment = balance × monthly rate ÷ (1 − (1 + monthly rate)^−term), monthly rate = APR ÷ 12; monthly saving = current payment − new payment; yearly saving = monthly saving × 12; total interest = payment × term − balance; total interest saved = current interest − new interest; net saved = total interest saved − fees; break-even = fees ÷ monthly saving, rounded up to whole months

That box is the whole formula.

Worked example: the $20,000 refinance

Step 1: Current payment = $20,000 at 9.5% APR over 48 months = $502.46.
Step 2: New payment = $20,000 at 6.5% APR over 48 months = $474.30.
Step 3: $502.46 − $474.30 = $28.16 a month, $337.96 a year.
Step 4: $4,118.21 − $2,766.35 = $1,351.86 of total interest saved.
Step 5: $1,351.86 − $300 = $1,051.86 net after fees.
Step 6: $300 ÷ $28.16 = 10.65 months, rounded up to 11 months.

Answer: current payment $502.46, new payment $474.30, saving $28.16 a month, total interest saved $1,351.86, net $1,051.86, break-even 11 months.

Cite this guideBright Side Kit. “How to Calculate Car Refinance Savings — Step by Step.” Method: monthly payment = balance × monthly rate ÷ (1 − (1 + monthly rate)^−term); monthly saving = current payment − new payment; total interest = payment × term − balance; net saved = total interest saved − fees; break-even = fees ÷ monthly saving, rounded up. Example: $20,000 / 9.5% / 48 mo → $502.46; 6.5% / 48 mo / $300 fees → $474.30 / $28.16 / $1,351.86 / $1,051.86 / 11 months.

Bright Side Kit. "How to Calculate Car Refinance Savings — Step by Step." https://brightoolbox.com/guides/how-to-calculate-car-refinance-savings/ Accessed October 25, 2026.

Planning estimate, not professional advice: this is a refinance estimate before tax and fees beyond the ones shown, not financial advice. Check the payoff amount, the new APR, and the fees with your lender before you rely on them.