Top Benefits of Having a Paid-Off Car

Considering that auto loans account for about 9% of consumer debt, it’s not uncommon to have a car loan that you’re regularly paying off. However, that’s not to say that it’s a good thing, either.

While most people don’t think twice about using car payments to finance a vehicle, having a paid-off vehicle can actually provide tons of benefits. By paying off a car loan early, people can pay less for insurance, avoid interest, and so much more.

If you’re interested in learning more about why paying off your car is worth the payoff (no pun intended), keep reading. Here are a few benefits of having a fully paid-off car.

You Pay Less for Insurance and Accidents

Most vehicle owners pay for collision insurance and liability insurance as well as other policies such as uninsured motorist coverage. All those policies, though required, can get pretty expensive.

That’s especially true if you’re driving a relatively new vehicle and making larger car payments. Why? Because your insurance policy has to match the value of the car, which can be based on payments.

While this might not bother some people, the savings can actually be huge. If you get into an accident in a car with payments on it, for example, you’re likely to receive a smaller payout.

The result is that you’ll have to finance a whole new vehicle, putting yourself further in debt.

With a paid-off car, on the other hand, you get access to lower insurance rates. And, many policies provide payouts that are large enough to cover the current value of your vehicle so that you can purchase a new car without worry.

You Avoid High-Interest Payments

Another major benefit of paying off your vehicle is that you can save yourself quite a bit of money on interest payments. The reason why is because, with standard auto loans, you have to make interest payments in addition to your monthly car payment.

Sometimes, those interest rates can be staggering, reaching numbers such as 25%! What ends up happening is that you spend years paying down only the interest without actually paying off your loan at all.

On the other hand, if you get rid of your car payments, you can put your cash toward other uses. Instead of wasting exorbitant amounts of money on car payment interest, you can put it toward things like maintenance and repairs.

You Avoid Stress

For most people, it’s not a big deal to make a monthly car payment. However, if you don’t have a secure job or if something happens that causes your income to decrease, car payments can lead to a whole lot of stress.

Suddenly, your several-hundred-dollar car payment can seem impossible to pay. You’re left stressing over how you’ll manage your budget to simply make ends meet.

What’s worse, if you owe money on your vehicle and get into a tricky financial situation, you run the risk of having your car repossessed.

With a paid-off vehicle, however, you don’t have these worries. Your car can’t be repossessed while you get your finances back on track nor do you have to worry about large monthly payments.

And, if things really go south? You can always sell the vehicle for some spare cash.

You Keep Your Credit Stable

What many people don’t know about cars is that they’re closely tied to your credit score. That’s because if you have huge loans, such as a car loan, you can actually lower your credit score.

For instance, if you have a $15,000 car loan and pay off a remaining balance of $2,000, your credit can take a hit. That’s true even though you’re eliminating debt from your life!

Instead of worrying about these types of credit dips, you can simply steadily pay off your car loan so that your credit score gets based on other factors.

Even if you don’t have a large balance on your car, paying off your vehicle can help your credit. That’s because you can reduce your overall debt, making you look like a more responsible borrower.

When you don’t have a car payment to worry about, suddenly all your credit is simply calculated by mortgages, rental history, bill payments, and other more manageable factors.

You Can Reduce Your Environmental Impact

Okay, so this one might not be true for everyone, but for a lot of people, it is. When you have a paid-off car, you have more money to spend on maintenance and upkeep that prevents it from damaging the environment.

When you don’t have to concern yourself with massive monthly car payments, you have a lot more room in your budget for paying for maintenance. That lets you keep your car on the road for much longer and offsets the impact of creating new cars.

Just by maintaining your car properly, you can contribute to a cleaner planet. Or, you can sell your vehicle and purchase a new, more environmentally-friendly one outright without having to worry about putting any cash from the sale toward paying off car debt.

You Get More Financial Freedom

Paying off a car loan early can give you more financial freedom. That is because your car will only depreciate while you continue to pay interest. When you eliminate this payment, you can put your money towards something whose value will grow. You can use these funds to save for emergencies, invest, or pay off other debts. You can also use this money to save for a downpayment on a home or add to a college fund for your children.

Leasing vs. Financing

Leasing and financing are two ways to acquire a new vehicle. However, financing can make more sense financially. Financing allows you to build equity in your car and work towards full ownership while leasing only allows you to use the vehicle temporarily. Once you complete the financing terms, you will own the vehicle outright.

This allows you to save money over making continuous lease payments. Paying off a car loan early allows you to save even more money, which isn’t an option when you lease a vehicle.

Consider Having a Paid-Off Car Today

As you can see, having a paid-off car can provide you with tons of benefits. Just by getting rid of your auto debt, you can leave yourself with many financial and environmental benefits.

Are you ready to pay off your car and start reaping the rewards of having a fully paid-off vehicle? Get in touch with us to learn about our loans for paying off your car!