Compare your current business loan payment with a refinanced one, and see how long it takes to recover the penalty and fees.
Use this calculator when your business is paying a high rate on an existing term loan, often one taken when the business was younger or credit was tight, and another lender has offered a lower rate for the same remaining period.
How it works. Both payments are calculated over the same number of years left with monthly compounding. The monthly saving is the difference. Break-even = costs / monthly saving. The last figure is the monthly saving multiplied by the remaining months, minus costs.
Worked example (illustrative). $180,000 left at 11.5% with 4 years to go costs about $4,696 a month. A new loan at 8.25% over 4 years costs about $4,415, a saving of about $281. Costs are a prepayment penalty of three months' interest ($180,000 x 11.5% / 4 = $5,175) plus $2,100 of new fees, $7,275 in total. Break-even is about 26 months and the net saving over 4 years about $6,190.
Limits. Keep the period the same for a fair comparison: stretching the new loan lowers the payment but can raise total interest. Penalties differ by agreement; read your prepayment clause. See refinancing an expensive business loan. Defaults are illustrative.
Worked Examples and Checklists
When refinancing a high-rate Canadian business loan pays off, how to price the prepayment penalty and new fees, the break-even arithmetic, and the trap of stretching the term.
