Auto loans have become a normal part of life for many Americans. In fact, data from Experian shows that there’s a total of more than $1.2 trillion in auto loan balances and roughly 85% of new passenger vehicles are financed. With auto loan debt becoming so common, you might already be familiar with the process of leasing a car or buying a car, but do you know what to do after you pay off your car loan?
How do you get your vehicle’s title? Do you need to do anything special? What steps should you be taking to make the most of your money without the burden of an auto loan? We’ll answer all of these questions below, so sit back, celebrate your accomplishment, and learn what next steps you should consider.
Get Your Title
Whether it was two years or five years, you’ve been working diligently to pay off your car loan for a long period of time, and securing your car’s title from the lienholder is the first thing you want to do. After all that hard work, you don’t want someone else’s name on the title of the car that you now own outright.
What’s a lienholder?
The lienholder is the institution you borrowed from to pay for your vehicle. If a borrower fails to make payments on their debt, the lienholder is within their rights to take possession of the property (car) in question.
How do I get my title after making my final payment?
When you make your final payment on an auto loan, you’re eligible to obtain a lien release, according to Autolist. After obtaining a lien release, you’ll be able to receive a clear title of ownership from the Department of Motor Vehicles (DMV). The process for lien releases can vary from state to state, so make sure to contact your lienholder and state DMV for the requirements.
Review Your Insurance Coverage
When a lending institution has a lien against your vehicle, they have some say in what type of insurance coverage you carry. Because they have a financial interest in the vehicle until it is paid for in full, they often require the borrower to carry more robust coverage. Instead of just liability insurance, they might require you to have comprehensive coverage and collision coverage in force until your loan is paid back.
However, when you own your vehicle outright, you determine what coverage is best for you. After you finish paying off your auto loan, we recommend that you take the time for a policy review. Give your insurance company a call and figure out what makes the most sense for you and your family. Do you want to lower your premium payment, or are you okay with paying a little more now for increased financial protection in the event of an accident? Now that you’re not beholden to a bank or other lending institution, you can decide what type of insurance coverage is in your best interest. Unsure whether or not you should drop comprehensive and collision coverage? Here are some tips from Forbes to help you out.
Adjust Your Budget
According to Experian, the average monthly car payment is $554 for new vehicles and $391 for pre-owned vehicles. In other words, now that you don’t have a regular car payment, you likely have a significant amount of extra money each month. If you choose to reduce your insurance coverage, that amount may be even higher. If you’re not careful and purposeful, you could end up spending your funds in a way you don’t really want. Developing a sound plan is a wise idea, so here are a few ways you could consider reallocating the money.
Save for Repairs & Maintenance
Nobody wants to think about their car breaking down, but even the most reliable vehicles need work from time to time. Also, if you reduced your insurance coverage, it might be a good idea to save some additional money for out-of-pocket expenses if you ever end up in an accident.
Save for Something Specific
Everyone has different needs and desires, and extra money each month can help you reach your savings goals quicker. If you have a wedding coming up, put aside some of your additional money for the big day. Saving to go back to school? Putting extra cash away each month could help you start a semester sooner. Evaluate your priorities, and put money toward the things that matter most to you.
Invest for the Future
You’ve already been living your day-to-day life without this money. So what if you decided to simply invest it for the future? A few hundred dollars a month now will likely be worth exponentially more in a few decades when you’re ready to retire. Not sure where to begin? Start searching for ways to improve your financial literacy and consider talking to a financial advisor. Your future self will thank you.
Just pay off your car loan? We’d love to help you review your coverage and make sure it’s still right for you. Call us, visit us online, or stop by your nearest Direct location for a policy review or free quote!