Calculating the Refinanced Payments of Auto Financing

Refinancing is a great option for individuals who are suffering due to their higher monthly payments. There are many borrowers who had agreed to the loan terms under pressure or excitement of getting a new car. This resulted in a profitable situation for the dealer as he/she got to charge whatever rate they wished. Even a difference of one percent can add hundreds of dollars on the auto financing loan and several dealers are known to mark up the rate by several points.

Calculation of the new monthly auto financing payment can be easily done by an individual with basic math skills. The following mentioned example can be studied to get a view regarding the old and new monthly payments. For example, let the initial loan term be 18000 dollars. The term is 3 years and the interest charged is 15 percent. This means that the borrower has to pay back $6,000 dollars a year as amount ($500 a month) plus $900 in interest ($75 a month). This amounts to $575 dollars a month.

Now, if the borrower refinances after one year, then he/she has already paid $6,900 dollars to the dealer. Now the refinancing has to be done for $13,800 dollars ($12,000 plus interest). Seeing that the loan is being paid off entirely sooner, several lenders might even provide some reduction. Now the loan amount becomes $13,000 dollars approximately. As the credit score has improved after one year of payments, the interest charged by the new lender is far less and the term is higher. If the rate is even 10 percent and the loan term is four years, the monthly auto financing payment comes to almost $300 a month ($3,250 a year in amount plus $325 in interest).

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