The cost of auto insurance for financed cars might be different from if the car is yours. With a lender involved, there are requirements that must be met to satisfy the loan, often including the need for full coverage auto insurance. To help protect your bank’s investment, you can choose from a variety of deductibles and add-on coverages.
A financed car means that you borrow money until the loan is paid off and then take possession of the vehicle. This is different than a leased vehicle, which requires you to make a monthly payment and return the car to the dealer.
What type of insurance is required to finance a car?
Full coverage car insurance is required by lenders to protect the vehicle from physical damage. The deductible is the amount you pay to have your car fixed after it has been damaged by an accident or other covered event. Full coverage not only protects the loan but also benefits the driver by not having the entire cost of repairs.
- Liability coverage: This insurance covers bodily injury or property damage that you cause to another person in an accident up to the limits of your car insurance policy.
- Collision coverage: This coverage covers your vehicle if it is involved in an accident that causes damage to the car.
- Comprehensive coverage: Also called other-than-collision coverage, comprehensive coverage pays for covered perils that collision does not, like weather events, broken glass and hitting an animal.
Almost every state has minimum car insurance requirements that must be met to legally drive a vehicle on the road. Optional coverages include rental car reimbursement. This pays for your vehicle while it is being repaired due to a covered loss. Other options like roadside assistance pay for things like key lockout, running out of gas or towing after your car has broken down.
What is the cost of full coverage on a vehicle that has been financed?
The cost for full coverage varies based on a number of factors, but the national average cost of car insurance is $1,674 per year, according to Bankrate’s 2021 study of quoted annual premiums. The average cost for minimum coverage is $565 per annum, but financed cars will require full coverage insurance in order to meet loan requirements. If you do not meet the car loan insurance requirements, it can lead to force-placed insurance, which is usually much more expensive than purchasing full coverage on your own and only protects the lender.
Is it more affordable to insure a leased car than a financed one?
The cost of your car insurance won’t change regardless of whether you finance or lease it. However, you may pay more on your auto loan insurance to meet the lender’s requirements, such as purchasing full coverage, than you would if you owned the car outright and chose less coverage or liability-only insurance.
When financing a car, be aware of the terms
There are many terms that you need to be familiar with when you finance or lease a vehicle. These terms will usually be included in your financing or leasing agreement. They will dictate the amount of your car payment, as well as how the lender arrived at that figure.
There are many ways to save money on auto insurance for financed cars
Although full coverage auto insurance can be more costly than the state minimum liability, there are still ways to save money while still fulfilling loan requirements.
- You can increase your deductibles. The higher your collision and comprehensive deductible, the lower your car insurance premium will be. It is a good idea to think about how much you can afford to pay out of pocket in the event of a claim before you increase your deductibles.
- Compare rates – Buying auto insurance frequently is another way to save money on your financed vehicle car insurance. To find the lowest rate, you can compare coverage limits between different companies.
- You can save money by paying full price if an insurance company charges installment fees. You may also be eligible for a paid-in-full discount from some companies, which could save you even more.
- Keep your car safe. Avoiding tickets and accidents can help keep the cost of insurance low. Many auto insurance companies offer safe driving discounts.
- Telematics tracking is worth considering – By following safe driving habits, you can often save on your premiums. Telematics can analyze your driving habits, such as speed, braking, mileage, and other factors, to help you save on car insurance.
Questions frequently asked
What happens if you finance a car and have insurance?
You still owe the remaining loan balance if you finance a car and add insurance. The insurance company may pay the market value but there could still be a loan balance. In this instance, having gap insurance may be beneficial This optional coverage is often worth considering for financed or leased vehicles.
What is the best type of car insurance to insure a vehicle that is financed?
The best car insurance policy is one that fits your budget and has the coverages you need. You can find the lowest rates for your company by shopping around and getting quotes. This will allow you to get the most coverage without having to compromise on quality. You can also get lower rates by adding discounts.
What happens if insurance is not paid on a car you finance?
Lenders can also add force-placed coverage if premiums aren’t paid on time or your auto insurance expires. Lenders often request to be included as loss payees on policies. In this case, the insurance company notifies lenders if the insurance is cancelled, lapses, or renewed.
When is it okay to cancel your full car insurance?
If you don’t have a financed car, the decision to drop full-coverage car insurance is yours. You may need to drop full coverage if the car’s book value is less than the cost of insurance. You may want to keep full coverage if your car is damaged in an accident.
