Congratulations — you have paid off your car loan. But the question may arise, now what? After you've paid off your car loan, there are some items you should address. Some of the steps you should take once you own you car include:
Looking into different insurance coverage options.
One advantage of paying off your car loan is that you may be able to get a better rate on your car insurance. First, notify your insurance company that you've paid off the loan so they can remove the other lender from your policy.
Lenders often require that you carry a minimum level of insurance so that if any damage were to occur, their collateral and investment (the car) would be sufficiently protected. Once your car is paid in full, you may be able to contact your insurance company to see if they can reduce your coverage or offer you a better rate.
Don’t be too alarmed if you see a dip in your credit score.
Paying off a car loan can affect consumers differently, but here’s an overview of what you need to know. Generally speaking, when you pay off a car loan, your credit score will take a mild hit. This is because paying off a loan, particularly a large one like a car loan or mortgage, can have an initial negative impact because it creates instability in the credit history.
The good news: A drop in your credit score after paying off a loan is usually only temporary. In most cases after a few months, your score will have rebounded.
Consider saving the extra funds.
Another benefit of paying off your loan is that now you can use the money you put toward your car payment for other things. This is a great opportunity to save or invest, as you've already proven you can function without the extra cash.
No matter whether you begin to save, invest or utilise the extra money for something else, you can have peace of mind that you successfully paid off your loan and are now the sole owner of your vehicle.
Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.