What to Do When You Pay Off Your Car

People are taking more time paying off their auto loans. Auto lenders, in an effort to get more people to buy more cars, are giving people more time to pay off their loans. The result is lower monthly payments. At the end of 2012, average new car loans were 65 months, just shy of five and a half years. But there are car loans as long as 97 months. That’s more than eight years.

After paying on a car for so long, you might feel like a huge weight has been lifted off your shoulders when you send the final car payment to the auto lender. Before you get too comfortable with the extra cash, make some decisions on how you’re going to spend the money.

One thing you shouldn’t do is jump right back into another auto loan, especially if your current vehicle is running just fine. Automobiles are lasting longer these days, so if you’ve had your car for six or seven years, there’s a good chance you can get three or four more years out of it. In that time, you could almost save up enough money to purchase another vehicle with cash.

By the time your car loan runs out, or a little bit before, it may be time for major maintenance on your vehicle. Scheduled maintenance over 100,000 miles can cost several hundred dollars. One of the things you can do once your vehicle is completely paid off is start a car maintenance fund. Having money saved up for major maintenance and repair means you don’t have to go into debt trying to preserve the life of your car. The more miles you can get out of your vehicle, the better the return on your investment.

There are a few other ways you can put your former car payment to good use. For example, you may use it to pay down some of your credit card or student loan debt. Or, put it toward your mortgage to pay it off sooner. If you don’t have an emergency fund, you can build a strong one within several months by diverting the amount of your monthly car payment into a savings account.

If you’re not already maxing out your retirement contributions each year, you can increase your savings to help out your retirement fund. This can be especially beneficial if your employer has a matching program. You may get an added tax benefit since many retirement contributions aren’t included in your taxable income.

Home ownership may have been out of reach as long as you were paying a car note. But, with a few hundred dollars freed up each month, you can start putting money toward a down payment. If you were formerly paying $500 a month on your vehicle, you can save up a $6,000 down payment in just one year!

There are a myriad of options for putting your car payment money to good use. You may be tempted to have some fun with the money, especially after having been without it for so many years. But, reaching your goals will be so much more enjoyable than the short-term satisfaction of splurging. To eliminate the temptation to spend frivolously, make your savings or bill payment automatic. Set up an automatic transfer to your savings account or payments to your creditors on the same date that your car payment used to come out. That way, when the money’s going toward your important financial goals, you won’t feel a thing. One day, you’ll check your account status and notice what great progress you made.