Auto Refinance Calculator Calculate New Monthly Installments

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.

About Auto Refinance Calculator

The formula for calculating Auto Refinance is per below steps:

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

First, we need to find out the outstanding principal balance just before the rate changes.

Wherein,

P is the loan amountR is the rate of interest per annumN 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 credibility 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?

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.

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:

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

= [$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 refinance calculator 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 more 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.