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A car payment can be one of the most significant expenses in the monthly bill rotation. Refinancing an auto loan can open the door to a lower monthly payment and interest rates and gives you the option to delay your first payment.
While delaying the first payment is not a free pass, it is a chance for temporary relief for tighter budgets. Let’s unpack the ins and outs of delaying the first payment after refinancing an auto loan.
Understanding the transitional period in auto loan refinancing
When a borrower refinances their auto loan, the perception of “skipping” a payment often arises, but it’s important to understand the mechanics behind this.
Auto loans are typically paid in arrears, meaning the monthly payment covers the loan usage for the preceding month, unlike rent payments, which are paid in advance.
During the transitional period between the old and the new loan in refinancing, here’s what happens:
1. Loan payoff and transition
When the new lender pays off the existing loan, there’s often a short period before the first payment on the new loan is due. This is mainly due to the time it takes to process the payoff and set up the new loan.
2. Interest accrual
During this period, interest continues to accrue on the new loan from the date it’s disbursed. Although there’s no payment due immediately, the interest isn’t being skipped; it’s just accumulating until the first payment is made.
3. “Skipping” a payment
The perception of skipping a payment comes from the gap between the last payment on the old loan and the first payment on the new loan. In reality, borrowers aren’t skipping but merely delaying the payment. The accrued interest during this period is typically rolled into the subsequent payments.
4. Adjustment in payment schedule
The first payment on the new loan usually gets scheduled for the following month after the loan is disbursed. This scheduling leads to the impression of a missed payment, but in actuality, it’s just the readjustment of the payment cycle.
The transition period doesn’t eliminate any payments; it merely shifts the payment schedule while interest accumulates.
Does auto refinancing let you skip a payment?
Auto refinancing doesn’t let you skip a payment. However, it enables you to extend the first payment’s due date.
When you refinance your auto loan, you can delay the first payment. It pushes the due date back for the beginning of the repayment plan. You are still responsible for the same number of payments. When people talk about skipping a payment while refinancing a loan, they mean postponing it for a later date.
It may not be a real “skip,” but it’s a wise way for refinancers on a tight budget to find temporary relief from monthly car payments. This option buys extra time before making a first payment on the new loan.
Extending the first payment has a ripple effect
While delaying the first payment can provide immediate financial flexibility, it’s crucial to recognize that this extends your loan’s final due date.
It’s a shift in your repayment schedule, not a pardon for a payment. It’s critical to consider this when assessing your final due date. The more you extend the loan, the longer it takes to pay back.
Scenarios when this might be helpful include:
- Temporary financial crunches due to unexpected bills (medical, utilities, replacement/repairs)
- Anticipated improvement in financial situation (new job, raise, bonus, insurance payout)
- Income disruptions from seasonal work or changing jobs
- Delay of the sale of an asset
- Rebalancing debts
How long can you wait to make your first payment?
A typical first payment waiting period is in the range of about 30-45 days. However, some lenders may offer a grace period of up to 60 days, allowing you to delay your first payment for two months.
The maximum wait before you’re required to make the first payment after auto refinancing varies based on the terms of your new loan. This grace period can be helpful for choosing a strategic payment date.
One idea is to align it with your paydays to streamline your finances. Planning your first auto loan payment with your rent or mortgage payment date batches financial responsibilities to foster a consistent monthly budget. This helps you avoid unnecessary late fees.
For those on a tighter budget, offsetting car payments from heavy bill periods can improve financial stability. If you’re paid twice a month, one check pays your rent or mortgage, and the other is for your auto loan. This approach is helpful for those who don’t have the cushion in their accounts to cover all their monthly bills in the same week.
No matter the financial situation, this is a wise opportunity to choose your loan date carefully.
What are the advantages and disadvantages of starting payments later?
Beyond the pros and cons of refinancing your car, you must consider the impact of a new payment schedule and decide if delaying the first payment is right for you.
On the one hand, taking care of loans as quickly as possible feels rewarding. On the other, it may not be feasible or the smartest choice depending on your bills and circumstances.
Advantages of later payments:
- Freeing up money for immediate expenses
- Ability to cover extra vehicle expenses
- Flexibility in financial planning
Disadvantages of later payments:
- Increased total interest charged
- Risk of forgetting upcoming payments
- Possible short-term solution for a larger problem
Remember, auto refinancing may affect your credit score, such as causing a temporary reduction before coming back up. So, it’s important to plan in conjunction with other events that rely on your credit score.
Can you skip payments after your loan begins?
You should always pay every payment after a loan begins.
After your first payment, you must follow the agreed-upon repayment schedule outlined in your loan agreement. If you find yourself unable to make payments, skipping them is not a viable solution.
When you need help with your car payments, talking to your loan issuer for guidance on what to do when you can’t afford a payment is crucial.
Your auto loan issuer can guide you through options that may or may not include deferment, forbearance, repayment plans, or other guidance.
Auto loan refinancing does not allow you to skip a payment. However, it does offer the flexibility to delay the start date of the first payment. This can offer short-term financial relief.
Planning your payments strategically and weighing the advantages and disadvantages of starting payments later are essential to making the healthiest financial decisions.
Maintaining financial discipline and seeking help if you face challenges meeting your payment obligations is crucial.
Are you ready to refinance and delay your first payment? Learn how much you can save refinancing with RateGenius’s Auto Refinance Calculator.
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