Glossary
If you are refinancing for the first time, these terms explain where costs can hide and what matters most when comparing scenarios.
- Your payoff amount (not just the balance).
- The total fees (and whether they are rolled in).
- The break-even (and total cost, not payment alone).
If fees are $900 and the new payment saves you $30 per month, break-even is about 30 months. If you think you might sell the car or pay off the loan before then, refinancing may not help.
The interest rate on your loan expressed per year. Higher APR generally means you pay more interest over time.
More
Why it matters: A lower APR can reduce interest, but it may not help if fees are high or the term extends.
How long the loan lasts, usually measured in months (for example, 36 or 72).
More
Why it matters: A longer term often lowers the payment but can increase total cost because you pay interest for longer.
The amount of money you still owe before interest. Your balance is mostly principal.
The cost of borrowing money. Each month, interest is calculated using your remaining balance and APR.
The amount your lender says you must pay to fully close the loan today. It can be different from your balance due to per-diem interest or fees.
More
Why it matters: Refinancing decisions are more accurate when you use payoff instead of a rough balance number.
Costs charged to start a new loan (origination, processing, title, documentation). Fees can be paid upfront or added to the new loan balance.
More
Why it matters: Fees can delay or erase the benefit of a lower APR. They are a major driver of break-even.
A fee some lenders charge to create the new loan. It is separate from interest.
More
Why it matters: Origination fees increase the cost of refinancing and can push break-even farther out.
A fee charged for handling the refinance paperwork and setup. Names vary by lender.
More
Why it matters: Even small processing fees reduce the net benefit and affect break-even timing.
A fee for preparing and filing documents for the new loan. Sometimes called an admin fee.
More
Why it matters: It adds to total fees. Ask whether it is paid upfront or rolled into the loan.
Fees related to updating the vehicle title or registration when a new lender is added. These can be state-dependent.
More
Why it matters: They can be real costs even if the lender’s own fees are low.
Daily interest that accrues between payments. Your payoff amount can include per-diem interest up to the payoff date.
More
Why it matters: This is one reason your payoff amount can be slightly higher than your current balance.
Loan-to-value. It compares what you owe to what the vehicle is worth. Example: owing $12,000 on a $10,000 car is a high LTV.
More
Why it matters: High LTV can limit refinance eligibility or increase pricing, depending on lender policies.
The point where monthly savings have paid back the upfront costs (fees). Before break-even, you may be worse off; after break-even, savings may be real.
More
Why it matters: If break-even is far out, refinancing may not help soon. If break-even does not exist, fees may never be recovered through monthly savings.