Making the last payment on a car loan is a great accomplishment and, for most of us, a welcome relief. But with the end of that era comes another: life as the owner of a car – "free and clear."
Most people finance their vehicle for five years, said banker Deric Poldberg from American National Bank in Omaha, Nebraska. If you've just spent 60 months, give or take, with the same type of insurance, paperwork, and financial obligations, you might wonder what to do next.
Here, we break down the most common areas to address at the end of a financing term, including the paperwork and insurance details, and why you should think ahead and start saving for your next car loan.
1. Vehicle Paperwork
This part is easy in that you don't actually have to do anything except verify information and signatures. In most states, your lien holder will notify the Department of Motor Vehicles (or equivalent state entity) of the title change, and once the paperwork clears, the title (with your name on it!) will be mailed to you.
2. Your Finances
Most people who just finished financing a car are used to sending in $300 to $500 (give or take) per month, and once that's over, the extra cash can feel like a windfall. (Tip: If you're making automatic payments, make sure you end them when the loan is paid off.) You might be tempted to splurge on fun stuff or to make large purchases you've been putting off, but unless your transportation situation is radically changing soon, you'll always need a car. And that means you'll eventually need to pay for the next one.
"Once the last payment is made on a vehicle, some financial discipline can help consumers get ahead of the game with regards to their next vehicle purchase," said Bob Harwood, vice president Carloan.com in Richmond, Virginia. Harwood explained that people who save the equivalent of either part or all of their former monthly car payment can do their future selves a big favor when it comes to their next vehicle purchase: Put extra money in savings so you can pay a larger percentage of the purchase price upfront (which usually means you'll get a lower interest rate on your next loan and your monthly payments will be smaller).
Remember that your credit score will also have significant bearing on your next auto loan, so it's a good idea to keep an eye on it. You can see two of your credit scores for free, with updates every 14 days, on Credit.com.
3. Car Insurance Paperwork
Neil Richardson, licensed insurance agent and consumer adviser at The Zebra, explained what to do with your car insurance once you paid off a car loan: