What to do after refinancing your car
Whatever the reason you refinanced – whether it’s to get a better interest rate and lower your overall costs or just your monthly payment – there are important steps to take after your application is approved. Put yourself in the best possible position for future financing by staying in control of your new loan.
5 steps to follow after refinancing your car loan
Once you’ve shopped around to a few lenders and signed on the dotted line for your new vehicle loan, follow these steps.
1. Keep paying off your existing loan
Until the funds are received, you will need to continue making payments on your original loan. If you overpay, you can work with the lender to credit the amount. Better to overpay than under.
2. Receive a loan for a new car
Ideally, your new loan will feature improved rates and terms – hopefully without extending your term. The new loan will be sent to you or directly to the lender holding your original loan. All fees are either added to the loan amount or deducted from it, depending on your agreement.
3. Repay the old loan
The approach varies by lender, but before you start making payments on your new loan, you must first pay off your current loan. Either this will be handled directly between the lenders or you will pay it back yourself. In the second case, you will receive a check to give to your original lender. Be sure to do this as soon as your payment is available to avoid any additional charges.
4. Start making payments
Generally, your first payment is due 30 days after formal acceptance of the loan. Keep in mind that delaying any payment will likely incur additional interest.
In some cases, automatic payment is required or may give you a discount. If it’s not available, be sure to make payments on time to avoid fees and potential damage to your credit.
5. Check your credit status
Credit inquiries often temporarily affect your credit score. Fortunately, refinancing your loan can save you money down the road, so this reality shouldn’t hold you back.
After signing the loan, you can expect to see your score drop by a few points. The drop is temporary and you should see it go back up in a few months.
Is refinancing hurting my credit?
This can temporarily reduce your credit. But refinancing can actually save your credit in the long run if you’re struggling to meet monthly payments.
How to avoid having to refinance in the future
The key to avoiding a second refinance is getting the right loan. Consider the following tips to make sure you can keep paying your new loan.
- Focus on the total loan, not just the monthly cost. While it can be easy to focus on monthly payments, you should only consider this number when determining how much you want to spend on the car, all-inclusive. A low monthly cost is likely due to longer loan terms, which cost more over time. long term.
- Compare the prices. Loans are available from credit unions, banks and online lenders. Consider all options when looking for the best rate for your needs. And be sure to read the fine print before signing to ensure you’re getting the best loan for your specific needs.
The bottom line
Refinancing your auto loan is a great way to keep driving your car while ensuring you don’t get upset about your loan or fall into repossession. Once you get your new loan, pay off the old one, start making payments on time, and check your credit status in the months ahead.