Quick answer: Even a 2–3 percentage-point rate reduction can be worthwhile on the right balance and remaining term, while a larger rate reduction can fail if fees are high or the new loan restarts the debt for years longer. Calculate the break-even in dollars.
Borrowers often ask whether moving from roughly 16% to 13–14% is “enough” to refinance.
There is no honest universal answer.
Calculate the remaining cost of the old loan
Use:
- payout today;
- current repayment;
- months remaining;
- any exit fee.
Calculate the new loan from today
Use:
- exact new rate offered, not the advertised from-rate;
- establishment/monthly fees;
- proposed term;
- early repayment flexibility.
Break-even
If switching costs total $500 and the new structure saves $60/month, break-even is about 8.3 months.
Do not reset the clock invisibly
A borrower who has 30 months left and refinances to five years may see a much lower repayment. That is partly because the debt now lasts twice as long.
When credit improvement matters
A refinance review is more compelling after a material change:
- stable higher-paid employment;
- clean repayment period;
- fewer recent enquiries;
- lower existing debts;
- adverse event becoming older/resolved.
General information only. Approval, pricing, fees and eligibility depend on the lender, borrower circumstances and contract.
Frequently asked questions
Is a 2% rate saving enough?
It can be, depending on balance, term and fees.
What is break-even?
The point when cumulative savings recover the costs of switching.
Should I refinance a loan that is almost finished?
Often the remaining interest is small, so fees can outweigh the saving.
Does a lower repayment mean cheaper?
Not if the new term is materially longer.
Should improved credit trigger a review?
Yes, if it could materially improve pricing or lender choice.
Sources and verification
Related GPS Finance resources
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