After driving off the dealership lot with your new vehicle, there are important steps you need to take to manage your auto loan and keep the vehicle in your possession. Here are some suggestions to consider after obtaining an auto loan.
1. Be mindful of your budget
Now that you have secured the right auto loan by crunching the numbers, it’s important to keep your budget in mind. As payments have started, it’s essential to evaluate how they fit in with your other financial obligations.
Edmunds recommends that your car payment should not exceed 15% of your take-home pay for a new car and 10% for a used car. If this percentage is beyond your budget, you may need to reduce expenses in other areas.
2. Set up autopay
Setting up automatic monthly payments on your auto loan is a great way to avoid missing payments and falling behind.
Many lenders provide the option for autopay, and some offer extra discounts of 0.25% to 0.5% when utilizing this feature.
To add your bank account information, contact your lender. Keep in mind that certain auto loans financed by banks might require you to have a checking account with that same financial institution if you wish to use autopay.
3. Work toward early repayment
Paying back your loan earlier than planned allows you to own the vehicle faster and reduces the total interest you will pay. Consider increasing your payments or using tax refunds to pay off more of the principal amount.
Furthermore, if you receive a sudden large sum of money, it would be beneficial to use it to make early payments on your auto loan. Alternatively, you can use the money to pay off your highest-interest debt first. This way, you can save money and allocate more funds towards paying off your auto loan.
Before deciding, it’s recommended to use an early payoff calculator to determine if paying off your loan early is a wise decision. Additionally, make sure that your lender doesn’t charge any fees for early repayment. If there’s a prepayment penalty, make sure that the amount you will save is greater than the penalty.
4. Consider refinancing
Refinancing can benefit you if you are having difficulty making your auto payments or if your credit score has improved due to making regular payments. This involves obtaining a new loan with a potentially different interest rate or term length and using it to pay off your existing loan.
Before proceeding, it’s important to calculate the potential savings and keep in mind that refinancing your auto loan may not be the ideal solution for everyone. If you have other outstanding debts, consider refinancing a different loan to free up some extra cash and use it to pay down your auto loan.
5. Communicate with your lender
To ensure the health of your loan and safeguard your future, it’s important to maintain frequent communication with your lender. This will help you stay on track and avoid problems down the line. By forming a solid relationship with your lender, you’ll be better equipped to handle any challenges that may arise.
If you think you might not be able to make a payment, don’t hesitate to ask for help. It’s important to reach out for support as soon as possible if you encounter any problems.
The bottom line
Managing your auto loan properly is important to ensure that you own your vehicle once the loan is completely paid off. If you don’t, you may face financial difficulties and lose your vehicle.
If you want to fully own your vehicle soon, here are some steps to follow: keep your budget in mind, set up autopay, aim to pay off your loan early, think about refinancing if necessary, and communicate openly with your lender.