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.
  • 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.
  • Refinancing can help prevent you from becoming upside down on a loan or facing repossession.

Whatever the reason you refinanced — be it to get a better interest rate and lower your overall costs or just your monthly payment — there are important steps to take following your application’s approval. Put yourself in the best possible position for future financing by staying on top of your new loan.

What to do after refinancing: 5 steps

Once you have shopped around at a few lenders and signed on the dotted line for your new vehicle loan, take the following steps.

1. Keep paying off your existing loan

Until the funds are received, you’ll need to keep making payments on your original loan. If you overpay, you can work with the lender to have the money refunded. It’s better to overpay than under.

2. Receive new car loan

Your new loan will ideally carry improved rates. Extending your term is an option for lowering your monthly payment,t 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. In the second case, you will receive a check to give to your initial lender. Be sure to get this done as soon as your payment becomes 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.

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. Fortunately, refinancing your loan can save you money, so this reality shouldn’t hold you back.

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.

Does refinancing hurt my credit?

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

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. The key to avoiding a second refinance comes down to taking out the right loan. Consider the following tips.

  • Focus on the total loan, not just the monthly cost. While it can be easy to focus on the monthly payments, you must only consider that number when determining how much you want to spend on the car. Longer loan terms lower your monthly payment but not overall costs.
  • Shop around. 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. Once you get your new loan, pay off your old one, start making on-time payments and check on the state of your credit in the coming months. If refinancing isn’t right for you, consider trading in your vehicle.