How a buy-down pays off
You pay points or a fee at the start, and the lender reduces the rate. The benefit is the smaller monthly payment; the cost is the fee, which is only recovered after enough payments.
The break-even month is the fee divided by the monthly saving. If you sell or refinance before then, the buy-down loses money.
Worked example
A £25,000 loan at 8% over 60 months costs £506.91 a month. Paying £1,000 to cut the rate to 6.5% lowers the payment to £489.15, a saving of £17.76 a month.
The fee takes 57 months to recover. Interest saved over the term is £1,065.37, so the net saving after the fee is only £65.37.
When to buy the rate down
It makes sense when you keep the loan past the break-even point and have the cash available. On short terms or small balances the fee often outweighs the saving.
Compare the buy-down with simply making a larger deposit: both reduce the payment, but the deposit also lowers the amount borrowed.
Inputs for the auto loan rate buy down calculator
Loan amount
The amount you are borrowing.
Rate without buy-down
The rate quoted before any points are paid.
Term
The number of monthly payments.
Rate after buy-down
The lower rate the lender offers if you pay the fee.
Cost of the buy-down
The points or fee you pay upfront to get the lower rate.
CALCULATOR QUESTIONS
Auto loan rate buy down calculator questions
How long does a buy-down take to pay off?
In the example, 57 months on a £1,000 fee saving £17.76 a month.
Is it worth it?
Only if you keep the loan beyond the break-even month and the net saving is meaningful.
Can I pay points on a car loan?
Some lenders offer it, though it is more common on mortgages. Ask for the fee and the reduced rate in writing.
Does a buy-down lower the APR?
The rate falls, but the fee is part of the cost, so compare the APR with and without the buy-down.