I’m trying to understand whether refinancing my car loan actually makes sense, because the numbers feel counterintuitive.
Current auto loan ( Toyota dealership):
- Interest rate: 5.49%
- Monthly payment: $615
- Remaining balance: ~$18,600
- Remaining term: 41 months
At my current payment, I’ll pay roughly $25,215 over the remaining 41 months.
Refinance offer (bank):
- Loan amount: $18,700 (dealer payoff)
- Interest rate: 5.79%
- Term: 36 months
- Monthly payment: $565
- Total of payments: ~$20,450
What’s confusing me is that the refinance has a higher interest rate, yet the total amount paid and the monthly payment are both lower, and the loan term is shorter.
Can someone explain why the refinance appears cheaper overall despite the higher APR? Is this simply due to the shorter term, or am I misunderstanding how interest is calculated on the remaining balance?