What Happens After a Car Loan is Paid Off
Paying off your car loan is an exciting experience. You get the satisfaction of knowing your consistent payments and dedication have earned you your vehicle, and the freedom of knowing you are no longer tied to a lien. Additionally, extra funds that would normally go to your payment are now available in your budget for other things. Once you make that last payment on your vehicle, there are a few things to do and consider. Read on to learn about what happens after a car loan is paid off.
Evaluate Your Credit Report
For many, completing the purchase of a car by repaying the lender your original amount plus taxes, fees, and interest, is a rite of passage. However, the accomplishment can be anticlimactic if you don’t know the next steps to take. Once you submit your last payment and it clears, you’ll want to take a peek at your credit score. An individual’s credit score is a tricky thing, as it takes into consideration a number of things, including the amount of outstanding debt you have plus the type of debt it is.
Understanding how paying off your car loan can help you maintain or develop a good credit score for future purchases and financing.
Get Your Title
The next step you need to take is to get a hard copy, concrete proof, that your vehicle is yours. In Ohio, you can expect to experience one of a couple scenarios. The lender may release the lien to you manually by marking on the front of the title that the lien is discharged and sending you the title. To remove the lien from your record at the Ohio Bureau of Motor Vehicles, take the document in and pay for any title fees. The lien will be removed from the system and they will issue your paper title.
The other way is electronically. If your lender participates in Ohio’s Electronic Lien and Title Program, the Ohio BMV records will no longer show a lien on the vehicle. You should then apply for a paper copy of your title with the County Clerk of Courts Title Office and pay the fees. Depending on your vehicle status, whether it is a salvage title or there is a late fee attached, your charges will vary. The basic fee for a Certificate of Title is $15. When the requirements are satisfied, the office will issue you your document.
Review Your Insurance Policy
When you are working to pay off a lien on a vehicle, you typically must have the car, truck, or SUV fully insured to protect the lender’s investment and protect yourself from having to pay a lot of out-of-pocket money in the case of an accident or theft. However, once your vehicle is completely yours and you owe nothing, you should review your insurance policy and go over your options. If you don’t drive far, you may not need full coverage.
Begin by checking with your insurance company and informing the company or representative that you have completed payments on your automobile. The company will remove the other lien holder (your lender) from your policy first. Owning your vehicle can help reduce your rates and lower your premium. You may be able to make changes and reduce your coverage, reducing your overall monthly or bi-yearly insurance payments. Raising your deductible can help put more money in your pocket.
Consider Your Budget
Now that you aren’t committed to paying a monthly bill on your vehicle, you can re-evaluate your budget and see how you want to apply your extra funds. The money you were using on your car payment can be used toward other things, like paying off student loans, investing, or building your savings.
The way you apply the funds will depend solely on your individual financial situation. You may have credit card debt with high interest rates that you want to pay down, or if you’d do best applying the money toward other necessities. Some individuals like to apply the funds that would be used on their car payment toward some routine maintenance on the vehicle, to ensure it is in the best condition possible. You could also pay more principal on your mortgage, or set the money aside for a fun family vacation.
You could consider saving the money in a 401(K) or adding it to a college fund for your child. Other investment options include opening or contributing more toward a traditional IRA or a Roth IRA to increase your retirement savings. No matter where you decide to use your funds, you can be satisfied knowing that you have paid off your vehicle and now own the car completely.
Start a New Side Hustle
Maximize your investment, and use your vehicle to start a new side hustle and make even more money to increase your monthly income. You can start driving with Uber, or Lyft and help individuals get from place to place. A grocery delivery service such as Instacart will allow you to work when you can while keeping your vehicle clean and safe, without the worry of having to cart passengers around. Other options include DoorDash and Postmates. You’ll want to check each website as some delivery services require your car to meet a minimum year and model standard.
If you want to take the passive income route and the car you just paid off is not your primary vehicle, you could consider loaning out your vehicle as a rental. Check out Turo for an option. You can begin the steps online and you decide when to rent out your vehicle.
No matter how you decide to use your newly freed income, paying off your auto loan is an impressive accomplishment that takes time and dedication. Whether you’re ready to invest in a new vehicle or have additional questions, contact us at your convenience. Check out our used vehicle inventory or get pre-qualified for a new automobile. We have some of the best options in Cleveland to fit your needs.