What to Do After You Pay Your Car Loan

After what seems like an eternity of car loan payments, you’ve finally mailed off the last payment on your loan. Now you fully own your car and you’re free of payments, what should you do next?

Store your title away safely. In some states, the motor vehicle department will automatically mail a title to you once the lender has notified them of the lien release. In other states, you may have to actually go to the office to get an updated copy of your title. Once you have your title, store it in a safe inside your home. Never store your lien in your car. It would be easy for a thief to use the document to take legal ownership of your car.

Check your last statement from your auto lender. Don’t assume you’re done with the loan until you get a statement from the lender with a zero balance. You don’t want a misunderstanding about your last payment to lead to late fees or a delay in receiving your title.

Make sure your credit report is accurate. Your credit report should show that you have a zero balance and that the loan is closed. You can dispute any errors with the credit bureau or with your lender directly.

Adjust your budget. Now that you have one less monthly obligation, it’s a good time to redo your budget. This will help you figure out the best way to re-allocate the funds you were using to pay off your car debt.

Pay off another debt. If you have more debt to pay off, whether it’s credit card debt, another loan, or your mortgage, you can use the extra funds to pay off your debt. It’s probably ideal to take care of any existing credit card debt first since it likely has the highest interest rate. Then pay off loans, like a student loan or personal loan. Finally, consider making extra payments on your mortgage to pay it off sooner.

Put more into savings. You could split the extra funds between paying off some debt and saving more money. If you don’t already have an emergency fund, try to build up at least $1,000 in savings right away. Then work on building up your emergency fund enough to cover up to six months of living expenses.

Change the payee on your auto insurance policy. Up until now, your auto lender was likely listed as the payee on your auto insurance policy in the event of a total loss. Since your car is paid off, you’ll want to remove your old lender and replace that name with yours. In some cases, your insurance rate might decrease once you no longer have a lien holder.

Celebrate. You’ll probably end up celebrating before you do any of these other things. But, make sure to at least give yourself a pat on the back for paying off your car loan and being that much more debt free.