Auto Refinance Calculator
An Auto Refinance calculatorRefinance CalculatorA refinance calculator finds the new installment amount when the borrower refinances his loan with a new interest rate to determine the interest savings amount for any loan issued on a reducing interest basis.read more finds out the new monthly installment when the earlier borrowed loan, which was at a higher rate, is refinanced at a lower rate
Auto Refinance Calculator
[P* R * (1+R)^N]/[(1+R)^N-1]
- P is the loan amount
- R is the rate of interest per annum
- N is the number of period or frequency wherein loan amount is to be paid
About Auto Refinance Calculator
The formula for calculating Auto Refinance is per below steps:
First, we need to find out the outstanding principal balance just before the rate changes.
Wherein,
- P is the loan amount
- R is the rate of interest per annum
- N is the number of period or frequency wherein the loan amount is to be paid
Most of the auto loans are initially financed at a higher rate due to the nature of the product and due to the credibility of the borrower. The loans are generally financed for 1 year to 5 years. If the borrower pays his installments timely, say for 10 to 12 installments, then he might be eligible to refinance the loan at a lower rate of interest as his creditability might have improved.
Either the dealer offers to refinance the same by charging some commission or the borrower wishes to lower his periodical installment or, as discussed, credit score has improved.
How to Calculate the Monthly Payments in Auto Refinance?
One needs to follow the below steps in order to calculate the Mortgage PointsCalculate The Mortgage PointsMortgage points are usually computed as a percentage of the overall loan amount, with one point equaling 1% of the total loan amount. The mortgage points calculator allows the borrower to determine whether he should make an upfront payment to lower the interest rate and, as a result, the monthly installment. He must also conduct a cost-benefit analysis and make decisions based on the results.read more benefits.
- First of all, find out the existing installment, the existing rate of interest, and an outstanding period of the loan.
- Either the dealer or the bank would have offered to refinance the auto loan at a lower rate of interest. Calculate the outstanding principal balance just before the new installment will begin.
- Beginning with the 3rd step, one needs to enter the outstanding loan amount, which is the outstanding principal amount:
- Multiply the principal by the new lower rate of interest.
- Now, we need to compound the same by rate until the loan period.
- We now need to discount the above result obtained in step 5 by the following:
Auto Refinance Calculator Example
Mr. Jain had purchased a luxury bike around 3 years ago for $45,000. The loan financed for 90%, and the rate of interest that was applicable initially was 9.00%, and he had taken the loan for 5 years. His monthly installment was $840.71, and he repaid his installments without making any default and on a timely basis. The dealer offered Mr. Jain that his loan can be refinancedRefinancedRefinancing is defined as taking a new debt obligation in exchange for an ongoing debt obligation. In other words, it is merely an act of replacing an ongoing debt obligation with a further debt obligation concerning specific terms and conditions like interest rates tenure.read more at a lower rate of interest, which shall reduce his interest outgo and also his monthly installments amount. He was ready to do that and was told that the new rate of interest would be 7.5% for the remaining period.
On the basis of the given information, you are required to calculate the new installment amount for the rest of the loan period and what would be his savings be.
Solution:
We will see the summary as to what information we are given here.
| Sr No | Particulars | Amount |
|---|---|---|
| 1 | Loan Amount Approved | $40,500.00 |
| 2 | Number of Years | 5 |
| 3 | Rate of Interest per annum | 9.00% |
| 4 | Frequency of payment | 12.00 |
| 5 | Monthly Rate | 0.75% |
| 6 | Total number of payments | 60 |
| 7 | Monthly Existing Installment | $840.71 |
Now we will first calculate the outstanding principal balance or the loan amount per below:
Mr. Jain has repaid installments until the end of 3 years, and hence the outstanding balance shall be:
The new monthly rate of interest will be 7.50%/12, which is 0.63%, and the outstanding principal balance is 18,402.50 with a loan tenure of 2 years remaining, which is 24 months.
| Sr no | Particulars | Amount |
|---|---|---|
| 1 | Loan Amount Approved | $18,402.50 |
| 2 | Number of Years | 2 |
| 3 | Rate of Interest per annum | 7.50% |
| 4 | Frequency of payment | 12.00 |
| 5 | Monthly Rate | 0.63% |
| 6 | Total number of payments | 24 |
At end of 3 years
= [$18,402.50 x 0.63% x (1 + 0.63%)^24 ] / [ (1 + 0.63%)^24 – 1 ]
= $828.10
Monthly Savings
- Savings monthly = Existing EMI – New EMI
- = $840.71 – $828.10
- = $12.61 per month
Total Savings During Rest of Tenure
- Total savings during rest of tenure = savings per month x remaining loan tenure in months
- = $12.61 x 24
- = $302.60
As the dealer stated, he is saving in interest, and his monthly installment amount has been reduced.
Conclusion
An auto can be used to
calculate the savingsCalculate The SavingsA simple savings calculator calculates the total value of investment done by the investor over time. It is used to compute the future value of an investment. Savings formula = P*(1+r)n + I*[(1+r)n – 1 / r ]read morethat the borrower can make while he refinances his auto loan at a lower rate of interest either due to his credibility has been improved, the dealer provides him option after charging a commission, or the borrower wishes to reduce his monthly installments, but that might not be necessary at a lower rate of interest, but here the tenure of the loan would have increased.
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This has been a guide to the Auto Refinance Calculator. Here we provide you the calculator that is used to calculate the new installments when auto loan refinances at a lower rate of interest along with the examples. You may also take a look at the following useful articles –
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