## Auto Refinance Calculator

An Auto Refinance calculator 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.

**Auto Refinance New Installment = [P* R * (1+R)^N]/[(1+R)^N-1]**

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 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 Points benefits.

**Step #1:** First of all, find out the existing installment, existing rate of interest, and outstanding period of the loan.

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**Step #2: **Either 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.

**Step #3: **Beginning with the 3^{rd} step, one needs to enter the outstanding loan amount, which is the outstanding principal amount:

**Step #4: **Multiply the principal by the new lower rate of interest.

**Step #5: **Now, we need to compound the same by rate until the loan period.

**Step #6: **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 refinanced 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 will 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

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.

**At end of 3 years**

**New EMI = [P x R x (1+R)^N]/[(1+R)^N-1]**

= [$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 dealer stated he is saving in interest and his monthly installment amount has been reduced.

### Conclusion

Auto refinance can be used to calculate the savings that 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.

### Recommended Articles

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 –