Here's what you need to know once you’ve made the final loan payment.
Paying off a loan brings a sense of relief and satisfaction, but what happens next? There are a few things you need to wrap up, along with some new opportunities to pursue. Here are a few points to consider once you’ve made that final payment.
You Can Stop Making Payments
Before making the final payment on your loan, it’s a good idea to contact your lender to confirm the exact payoff amount. This ensures you don’t end up owing any extra interest. Once that final payment is made, you’re done! No matter what type of loan you’ve paid off, be sure to get proof that it’s been fully paid. You’ll also want to cancel any automatic monthly payments you’ve set up.
You’ll Own an Asset
If you’ve paid off an auto loan or mortgage, you now own the asset free and clear. According to CarsDirect, in 41 “titleholding” states, you’ll receive the title to your car from the lender so you can transfer it into your name. In the other nine states, where you’re given the title when you buy a vehicle, you’ll receive a release of lien letter once the loan is paid off.
Once your home loan is paid off, consider contacting your local county recorder or clerk and request a certificate of satisfaction for your records. This document officially shows that your mortgage has been paid off.
You Can Focus on Paying Off Other Debts
Now that you’ve paid off one loan, it’s a good time to assess your other financial obligations. Do you have any remaining loans or credit card debt? You might consider applying the money you were spending on the loan you just paid off to help pay down other debts. This can help improve your financial health and give you another accomplishment to look forward to in the near future.
You Can Make Savings a Higher Priority
Paying off a loan also gives you a great opportunity to focus on savings. As financial editor Susannah Snider suggests for U.S. News & World Report, you can use the extra money to grow your emergency fund, increase retirement contributions, or put more away for your child’s college fund. You could also save for a down payment on a house or car, a major home purchase, or that dream vacation you’ve been planning.
Your Credit Score May Not Go Up Right Away
It’s natural to expect your credit score to improve immediately after paying off a loan, but that doesn’t always happen. According to Maurie Backman from Motley Fool, in some cases, paying off a loan can temporarily lower your credit score. Credit scores are based on various factors like account age and credit mix, and closing a loan may affect these. However, your score should rebound quickly, and over time, paying off loans will improve your overall financial track record.
Paying off a loan – whether it’s for your car, mortgage, or student loans – is a significant accomplishment. It also presents a financial opportunity, and knowing what to expect afterward can help you make the most of it.
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