9 Ways to Restart Your Relationship with Vehicle Loans
When you purchase a new (or new to you) vehicle, there are many things to consider. Cars offer us numerous freedoms, such as the ability to go to work, take our kids to sports practice, or travel hundreds of miles to experience something new. On the other hand, maintaining your vehicle AND your loan requires discipline and hard work. Through planning ahead and expecting the unexpected, you can use a car loan as an opportunity to raise your credit, build equity in your vehicle, make your car last longer and more! Use this article as a guide through the first year of owning your new ride and find out how you can start preparing for your next one.
Make a long-term plan. You have already chosen your vehicle and committed to a loan, but what else can you do? Look at your car’s current value and try to beat it. By paying off your loan faster than it depreciates, you give yourself more selling or trade-in power when you decide to get your next new vehicle, not to mention you can save on interest! Evaluate your current budget and see if you are able to slightly increase your monthly payment.
TIP: Don’t forgo saving to make extra payments.
Forget about making your payments
Instead of trying to remember to pay your auto loan every month, come up with a payment plan that works for your budget and set up automatic payments. Depending on your financial institution, you can do this through online/mobile banking or in person. This can be set up to “pull” the funds on a certain date(s) or every paycheck if you receive direct deposits.
TIP: If one monthly payment seems hard to manage with the rest of your budget, you can split payments into bi-weekly or weekly automatic payments.
Track your miles
By knowing how long you need to wait between oil changes, you can budget and save for your routine maintenance over time. For example, if your tune up normally costs $90, and you need one every three months, you would only need to set aside $15 a paycheck. The key to saving for maintenance is turning large, occasional payments into small, regular contributions. By saving for oil changes and tire rotations, you can avoid putting off scheduled maintenance.
TIP: If you like the convenience of automatic transfers, you can have funds transferred from your direct deposit into a separate savings account for car maintenance.
Remember to save for rainy days
Try to set aside a portion of your savings for car emergencies, especially if you purchased an older vehicle. Here are some sample milestone goals to get you started:
- The cost of your vehicle insurance deductible
- Goal 1 + $200 for an emergency tow
- Goals 1 and 2 + the cost of a new front bumper
You may be able to prioritize your savings goals by researching your vehicle’s year, make, and model. By reading owner reviews and industry research, you may find out that your specific car may have problems with a certain part. Planning ahead for that cost can save you from needing another loan for a vehicle repair or paying high interest by charging the expense to your credit card.
TIP: Occasional research can also keep you up to date on extended warrantees or recalls.
Don’t let your tires get tired
Immediately after you buy your new vehicle, assess the tire situation. Are they new? Are they worn down? Do they have enough tread to get your through the winter? Even if they are brand new, start saving for new tires as soon as possible. To get a better idea of how much you need to save, research online or speak to someone at your local tire retailer to see which tires would best suit your needs.
TIP: Every time you get an oil change, ask for a tire rotation as well. This can extend the life of your tires.
Take care of the exterior and interior
Keeping the car clean, buying seat covers to protect the upholstery, and getting all-weather floor mats can preserve your car and make it more appealing during the trade-in or selling process.
TIP: If you have a pet that travels with you, vacuum and steam clean upholstery more often as heavy pet hair can be a possible allergen for a potential buyer. It’s also difficult to clean if left unattended for an extended period of time.
Protect your investment with quality loan insurance
If you did not get your car from a dealership or forgot to ask for GAP or other loan insurances while doing the purchase paperwork, check with your financial institution to learn your options. Loan insurance can be added at any time. Spending a little extra each month can help fix your vehicle and even save money if you become unable to work, get in an accident, or someone on the loan passes away.
Don’t ignore the scary noises
Sometimes, you may hear clunks or see a flashing “check engine” light on the dashboard. Waiting to fix these small issues can lead to bigger, more expensive problems. If your vehicle is in need of repair and you don’t have enough money saved, speak with your financial institution to find a best option for financing. Many financial institutions offer small dollar amount loans that are more affordable than payday lenders.
TIP: Putting car repairs on a high-interest credit card should be a LAST resort unless you plan to pay the card off in the same billing cycle.
Your auto loan is one of the best tools in your credit building arsenal
Building credit shouldn’t be done only with credit cards. Having a vehicle loan adds more diversity to your loan portfolio. The key to raising your score lies in not only taking care of your auto loan, but also monitoring all aspects of your credit history. Research and sign up for the credit monitoring service that works best for you. If you need help getting your debt under control, contact your financial institution or meet with a financial counselling service to create a plan.
TIP: When using a credit monitoring service, know that the “credit score” shown is usually an estimate and not your actual score. What you should look for is accuracy and progress in your credit history.