After you refinance your car, you’re done, right? Well, sort of. While refinancing your car loan is super easy, you want to make sure all of your i’s are dotted and all of your t’s are crossed. So let’s talk about refinancing and what you need to do after your car loan is refinanced
Here’s what to do after you refinance your auto loan (and why you should refinance your car in the first place).
What steps should you take after refinancing your car loan?
After your car loan is refinanced, be sure to take the following steps.
Step One: Keep Paying Your Original Loan
You want to keep making payments on your original loan until you are sure that your new lender has paid off your old loan. If you overpay on your old loan, they will refund you the difference (just be sure to keep track of what payments you have made). It’s always better to overpay rather than underpay, so continue until it is clear that all of the paperwork is completed.
Step Two: Make Your Final Payment
Depending on who you refinance with, you may need to make the final payment to your old lender. Your new lender might handle this directly, just be sure that the original loan gets paid off in full.
Step Three: Start Paying Your New Loan
The next step is to start making payments on your new loan. Setting up for autopay can help ensure that you make on time payments.
Step Four: Check Your Credit Score
When all is said and done, it’s a good idea to check on your credit score. Refinancing your car loan will cause a dip in your credit score, but it should only last a few months. But keeping an eye on your score is always a good idea.
Why do people refinance auto loans?
There are a few reasons why people may choose to refinance their car loans. But the main reason people refinance is to save money.
Refinancing can get you a lower car loan APR
When you refinance your car loan, you get to start fresh with a new car loan. That means a new car loan APR. There are a few reasons why you may qualify for a lower car loan APR:
Their credit score has improved
The market rates have improved
Their debt to income ratio has improved
If any of these apply to you, there is a good chance you may be able to secure a lower car loan APR, which can save you hundreds (if not thousands) of dollars.
Refinancing allows you to change your repayment plan
If you are looking to change your repayment plan, refinancing your car loan is the perfect way to do so. Lengthening your repayment term will reduce your monthly payments significantly (although you will end up paying more over the life of the loan since you will be paying interest for a longer time). Shortening your repayment term will increase your monthly payments but it will save you a lot of money in the long term. Depending on your situation, shortening or lengthening your repayment period might be a good idea.
Refinancing allows you to add or remove a cosigner
There are a number of reasons why you may have a cosigner on your loan. Maybe you bought a shared car with a loved one, or maybe you just needed their good credit score to give you an edge. But you are not able to simply remove a cosigner from an existing loan if your circumstances change. You see, lenders take a lot of factors into account when determining the best car loan APR to offer. And if there are two people cosigning they will look at both of their credit scores and financial histories. If part of that changes, the likelihood of repayment changes (in the eyes of the lender, anyway). Therefore refinancing is the only option to change this situation.
On the other hand you may wish to add a cosigner to your loan. If a loved one has a better credit score than you they may be able to help you secure a better car loan APR. Or if you want to help a loved one build credit, adding them as a cosigner is a great way to do that. But whatever the reason is, refinancing is the best way to add or remove a cosigner.
When can you refinance a car loan?
You can refinance a car loan at any time. And you can refinance more than one time. But there are times when it makes more sense than others. Here are our top tips for when to refinance your car loan.
Wait six months to a year
Experts recommend waiting six months to a year before refinancing a car loan. This will give your credit score some time to rebound before you start looking for a new car loan. It will also give you time to make full, consistent, on time payments on your existing loan, which will also help ensure you get the best rates possible.
Wait until you will be offered a better APR
If you know that your credit score has not improved or that market rates have not improved, you may not be able to refinance effectively. While you can still refinance to change your repayment period or to add/remove a cosigner, it’s best to take the time to ensure you will get the best rates and terms possible. So before you refinance, take the following steps:
Request a copy of your credit report and review for errors
Make it a priority to make consistent, full, on time payments to all of your lenders
Enroll in autopay to ensure you don’t miss payments
Request higher credit limits to improve your credit utilization ratio
Don’t wait until the end of your loan
Refinancing will save you less and less money as time goes on. The closer you are to the end of your loan term, the less benefits you will see from refinancing. Refinancing when there are at least two years left on your loan will help maximize your savings.
Those are the steps to take after you refinance your loan.
Refinancing has a lot of benefits, so it’s worth pursuing if you suspect you might be overpaying. When all is said and done you can save a lot of money, but it’s important to follow up to be sure that your original loan gets paid off and that your credit score stays in good shape.
Refinancing your car loan is especially easy when you use a company that specializes in car loan refinance, like Auto Approve. Contact us today to get started!