Skip your first month's payment with Auto Refinance
Auto refinance lenders will often let consumers skip their 1st month's payment
Auto refinance is a great way to put money back into your pocket. One reason to refinance your car loan is to lower your monthly payment. But did you know that some companies take that to another level? RateGenius, Up2Drive and others will allow approved applicants to skip their first month’s payment.
The reason that companies will offer this option is manifold:
- Differentiated marketing tactic
- A teaser to get the applicant to actually go ahead and apply for the loan
- Increases total interest paid to the lender
- Buys time for the lender to put the loan terms together for the applicant
Marketing tactics
While at first blush it doesn’t seem normal that a lender would encourage the consumer to miss their first payment. However, when examining the first two reasons why a lender would offer skip your 1st month payment, we can see that it is a play to gain brand exposure, build traffic to their site, and ultimately to get applicants to apply. It is a great way to sell their offering at no real cost to themselves. Plus, for some applicants, skipping their first payment is a real value-add. The payment savings in the first month, by skipping that payment, could range between $50 and $200. That is a nice chunk of change to have on top of reducing your car loan interest rate.
More interest revenuefor the bank
Another reason why the lender would encourage applicants to skip their first payment is to increase the total interest paid on the loan. Since no principal will be paid down in the first month, it stands to reason that the total amount owed on the loan will increase after 30 days. This, along with the fact that the time to pay off the loan will increase translates into more interest paid over the life of the loan. While having the consumer miss the first payment is more risky, the bank will stand to gain more interest revenue.
Time for the bank to complete the refinance loan
Finally, it takes some time for the bank to hammer out terms on the auto refinance loan. The time in which a lender can assume the loan from another lender and setup your new account will vary between 3-15 business days, depending on how quickly documents can be assembled and verified. So, from an operational standpoint, having the consumer skip their first payment builds in additional time to finalize the refinance and to make a seamless transition from one lender to the other.
Auto Refinance Review Opinion
We don't think that there is a clear cut right or wrong way to pursue this option. If you are in a cash pinch, then this could be a good option to replenish your cash reserves for that month. You could take your refinance savings along with skipping that first month’s payment and put the money towards higher interest rate loans, such as credit card debt or unsecured loans. There really isn’t too much downside in taking this option except that you are inherently extending the payback period, which naturally increases total interest paid to the lender.
Ultimatley deciding to take the option to skip the first month's payment should be aligned with your car refinance goals. Are you trying to reduce the total interest paid to the lender or are you trying to reduce your monthly payment. If the latter applies, then skipping the first month's payment might be a good option for you.
