So you just refinanced your car loan, maybe it was to get a lower interest rate and lower your overall costs or maybe it was just to make your monthly payment smaller. Once you’ve been approved for refinancing, there are some important steps you should take. You need to put yourself in the best position possible by staying ahead of the curve on your new loan. In this article, we’re going to talk about steps you should take after you refinance your car loan.
5 Steps to Take After You Refinance Your Car Loan
Once you’ve shopped around with multiple lenders and gotten yourself approved for a new loan, you should take the following steps:
1. Keep Making Payments on Your Existing Loan
You must continue making payments on your first loan until the money is received. If you overpay, you can negotiate a credit with the lender. Overpaying of course is always preferred to underpaying.
2. Receive Your New Car Loan
Ideally, your new loan will have better conditions and rates, hopefully without extending your term. Either you or the lender holding your first loan will receive the new loan when it is approved. Depending on your arrangement, any costs are either added to the loan amount or subtracted from it.
3. Pay Off Your Old Loan
The process varies depending on the lender, but you must pay off your existing loan before starting payments on your new one. Either the lenders will handle this directly or you will be responsible for paying it off on your own. You will get a cheque to give to your first lender in the second scenario. To prevent any additional fees, make sure to do this as soon as your money becomes available.
4. Start Making Payments
Your first payment is typically due 30 days after you accept the loan. It’s important to know that delaying payments will likely result in additional interest charges. In some circumstances, autopay is necessary or qualifies you for a discount. If it's not possible, make sure to pay your debts on time to prevent fees and possible harm to your credit score.
5. Check Your Credit
It’s no secret that credit applications will usually affect your credit score. Fortunately, refinancing your loan can save you money in the long run, so you shouldn't let this stop you. Once you’ve signed off on the new loan, expect to see a minor drop in your credit score. The drop is only a temporary one and if you make your payments on time and in full, you should see it rebound within a few months.
How to Avoid the Need to Refinance Again
The real key to avoiding the need to have to refinance for a second time is finding the right loan the first time. Consider these two tips to ensure you can continue to afford your new loan payments.
- Pay attention to the loan total, not just the monthly payment. Even though it can be tempting to concentrate on the monthly payments, you need to be looking at the total cost of the loan if you want to save money. Longer loan terms are more expensive in the long run because of the interest you pay despite having lower monthly payments.
- Shop around. There are many places you can obtain a loan whether it be a credit union, bank or online lender. It’s important that you consider all of these options before signing on the dotted line to get the best deal possible.
Refinancing your car loan is a great way to keep your vehicle without ending up in an upside-down car loan. Once you’ve gotten your new car loan and paid off your other one you’ll make your payments on time and in full consistently and see your credit score improve.