What To Do After Your Car Loan Is Paid Off
Congratulations, you’ve finished paying off your car loan! We know that car loans can take years to pay off, so that’s no easy feat. Take a moment to pat yourself on the back. Paying off a car loan means two exciting things: First, you now own your car, and second, you’ve freed up some of your cash flow. If this describes you, you may be wondering, “Now what?”
There are a few administrative tasks to complete before riding off into the sunset. During this time, it’s important to revisit your finances and make some important decisions about your future. We’re excited to offer some exciting ideas about what you can do with those savings after paying off your loan. Read on to learn more about steps you can take after that last payment.
Confirm the Car Title Is in Your Name
Photo by Morgan Rovang on Unsplash
Once you fully own your car, it’s important to have a title that’s in your name. This makes it possible to sell the car again, provide the right paperwork to your insurance company, use the car as collateral if you need to apply for a loan, and comply with the law. Usually, your lender handles this process for you, so there’s not much you have to worry about. If, however, you don’t see the title in the mail within a few weeks, consider calling your lender to ensure there weren’t any paperwork or mailing issues.
Call Your Insurance Company
You can do this before you receive the official title, but a call to your insurance company is an important step after paying off your car. This way, the insurance company can update your policy information and ensure if you file a claim, any payments go to you and not your lender.
You might also have an opportunity to change your policy if you desire. Often, car insurance companies require drivers to have comprehensive coverage that covers both their own and others’ vehicles if they were to get into an accident. When you own your own car, this might not be a requirement anymore. That said, it can still be a good idea. A talk with your insurance company can be a good place to review your options and adjust whatever aspects of your plan you need.
Decide How You Want To Use the Money
Now for the fun part. With your car loan paid off, that means the money you were spending on your loan is now free to use for something else. What you choose to do next can depend a lot on your personal financial situation. Most car payments are a few hundred dollars a month, and that’s a lot of extra cash. Spending it wisely can help you prepare for your future responsibly.
The safest and probably most sensible option is to save the extra money. Putting those few hundred dollars aside each month won’t change your current budget, but it’ll help you build a healthy base for things you may need later. This could include car repairs and maintenance if you need to get work done on your car.
Another option is to upgrade. The average length of a car loan is 72 months, which likely means your car is at least six years old. If your car is still working fine and you’re happy with how it’s performing, then you might not need to get another vehicle right away.
But, if you’d like a newer vehicle or a different vehicle, you could sell or trade in your car to get an updated ride. At North Coast Auto Mall, we have a large inventory of new and used vehicles with comprehensive financing options that can fit almost any budget. Check out our vehicle payment calculator to see what your monthly payment would look like if you purchase another vehicle.
You can also use the saved money to adjust your budget and find room for the additional funds. If you’ve been restricting your budget in certain areas, like eating out, to afford your payments, consider allocating more funds to the things you enjoy. Spending the money on a weekly morning coffee run, workout classes, or a streaming service subscription can still leave extra for savings or other things you may need.
What Changes When You Pay Off Your Loan?
Paying off your loan changes a few things. For starters, you are now the owner of your car. This gives you authority to sell your car, pass it on to a family member, or customize it any way you like (so long as the modifications you make keep the car drivable and street legal). If your insurance covers an accident or event, you get the money and not your lender.
Another area that could see a change is your credit score. Your credit score is an important number that informs lenders of your creditworthiness. Typically, a few key factors influence your credit score, even though other information might affect it, too. One factor is the total amount of money you’re borrowing. When you had a car loan, your remaining loan amount was part of this number. Any other loans you have, like loans you have out for school or credit cards, are also part of this number.
Your credit score depends on this number and also on how well you pay back the money you owe. While it may seem counterintuitive, owing money is important for maintaining good credit. When you finish paying off your car, even though it’s a good thing and it means you paid off your loan, you may still see a dip in your credit. This can happen anytime you change your credit history, so don’t be alarmed. These changes are typically minor, and you can usually expect your credit score to go back up after a few months.
North Coast Auto Mall of Akron is Here to Help
Once again, congratulations on your accomplishment! It’s a big one. We hope you found this information helpful and you have a better sense of what to do now that your loan is paid off. If you have any lingering questions or think we missed an important point, let us know. We’d love to hear from you. Feel free to leave us a review if you have any feedback or praise about our financial services for car owners.