When you refinance a car, when is the first payment due?

Rebecca Betterton

Wed, Jul 31, 2024, 7:16 PM 5 min read

Key takeaways

It's important to keep making payments on your previous car loan until the new refinanced loan is finalized.
Refinancing a car loan can save you money in the long run, but it may temporarily lower your credit score.
A refinance loan can help prevent you from becoming upside down on a loan or facing repossession.
To avoid the need for a second refinance loan, it's important to carefully consider the total loan amount and shop around for the best rates.

When you refinance a car, the first payment is typically due about 30 days after your loan is finalized. Whatever the reason you refinanced — be it to get a better interest rate and lower your overall costs or just adjust your monthly payment — there are important steps to put yourself in the best position for the future.

Stay on top of the process and keep making payments on your old loan until you receive confirmation that it’s fully paid off. After that, you can focus on managing your new auto loan.

What to do after refinancing: 5 steps

Once you have compared auto refinance rates at a few lenders and signed on the dotted line for your new vehicle loan, it’s time to start making payments.

1. Keep paying off your existing loan

Until the funds are received, you’ll need to keep making payments on your original loan.Typically when refinancing, the new lender will pay off the old loan directly. Though in some cases you may be provided with the new loan funds directly and will use that lump sum distribution to pay off the old loan.

In the meantime, if you overpay on your existing loan, you can work with the lender to have the money refunded. It’s better to overpay than underpay.

2. Receive new car loan

Your new loan will ideally carry improved rates. Extending your term is an option for lowering your monthly payment, but it means paying more interest over time. Any fees are either added to the loan amount or taken out of it, depending on your agreement.

3. Pay off old loan

Before beginning 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 off yourself.

If you pay your loan yourself, you will receive a check to give to your initial lender. Be sure to get this done as soon as your loan funds become available to avoid any extra charges.

4. Start making payments

Generally, your first payment is due 30 days after formally accepting the loan. Remember that deferring any payments will likely lead to incurring extra interest. Just like your old loan, it is important to manage your payments to keep your credit in good shape.

In some cases, autopay is required or can give you a discount. If it’s not available, be sure to make on-time payments to avoid fees and potential damage to your credit.

5. Check the state of your credit

Credit applications often temporarily affect your credit score. After signing off on the loan, you can expect to see your score drop by a few points. The drop is temporary, and you should see it come back up within a few months. Fortunately, refinancing your loan can save you money, so a small hit to your credit shouldn’t hold you back.

Does refinancing hurt my credit?

Refinancing can temporarily lower your credit. But refinancing can actually save your credit in the long run if you are struggling to meet monthly payments.

When you refinance a car do you get money back?

If you have equity in your car, it is possible to get money back when you refinance a car loan. The process, known as cash-out auto loan refinancing or cash-back refinancing, is very much like traditional refinancing. You apply to receive a new car loan, ideally with more favorable terms to replace your existing loan.

As part of the refinance process, you will receive a lump sum of cash. The exact amount you’re eligible to receive depends on how much equity you have in your current vehicle.

How to avoid the need to refinance in the future

While you can refinance as many times as you’d like, this may not always be the best plan. By refinancing multiple times and continually extending the term of your auto loan, you may end up owing more than your car is actually worth. The key to avoiding a second refinance comes down to taking out the right loan. Consider the following tips.

Focus on the total cost: While it can be easy to focus on the monthly payments, only consider them when determining how much you want to spend on the car. Longer loan terms lower your monthly payment but not overall costs.
Shop rates with multiple lenders: Loans are available from credit unions, banks and online lenders. Consider all options when shopping for the best rate for your needs. And be sure to read the fine print before signing off to ensure you get the best loan for your specific needs.

The bottom line

Refinancing your auto loan is a great way to keep your car while reducing your chances of getting behind on payments. After your new loan is approved, it’s important to keep making payments on the existing loan until you receive funds or the old loan is paid off by the new lender. The timeline for this step will vary by lender — some are quicker than others.

Once the old loan has been paid off, it’s time to start making payments on your new loan. If refinancing isn’t right for you, consider trading in your vehicle.

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