Paying both your monthly car payment and car insurance at the same time can be a tough pill to swallow, and can lead to the understandable question, “is car insurance cheaper if you own the car?” The answer isn’t quite so simple, but there are savings to be had. Keep reading to find out how.
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Few people buy a new vehicle outright and instead have a car loan to help pay for the vehicle. These loans can last anywhere from a year to eight years, depending on the financing you choose.
But what you might not have realized is that your car loan can affect the car insurance coverage you need to have. While this isn’t necessarily a bad thing (extra coverage can come in handy), paying for more coverage can definitely impact your wallet over the years.
So, what happens when you pay off your car loan? While your insurance premiums don’t automatically drop, it can have a positive effect on your bottom line. We’ll dive into it below.
Your car insurance won’t magically drop a few hundred bucks, but you can potentially start saving money on your car insurance. This is because you typically need to have full car insurance coverage when you have a loan on your car in order to protect the financier; this usually includes collision, comprehensive, and liability insurance.
Once you’ve paid off your car loan, you can change your coverage if you want to; you may no longer choose to have comprehensive or collision coverage, as well as gap insurance.
By removing some or all of this coverage, you can save significantly on your car insurance premiums. Keep in mind, though, that you would need to foot the bill for repair costs for your vehicle should any of the above happen, if you didn’t have coverage.
If you decide not to drop the full coverage, you may instead be able to lower your coverage limits to bring down your premiums slightly. This lets you have the peace of mind of full coverage without the full cost.
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Another way you can quickly save on your auto insurance premiums is to raise the deductible. When you have a car loan, you’re typically required to have a lower deductible to ensure you can cover any necessary repairs in the event of an accident.
But once you pay off your loan, you’re in control of choosing your deductible. By choosing a higher deductible, you’ll be able to lower your monthly payments. This can be a double-edged sword though, as it means you’ll need to pay more out of pocket should an accident occur.
While your insurance premiums might not drop immediately, you will want to get a few things taken care of right away.
You may also want to check your credit score. Paying off a loan can improve your credit score, and some insurance providers use your credit to calculate your insurance premiums. If it’s improved, you should contact your insurance provider to see if they’ll reassess your rates.
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Car insurance isn’t automatically cheaper if you own your car, but it does open you up to savings that you couldn’t have had with a car loan. Either way, you’ll be saving your monthly car insurance payment, which will create some breathing room in your budget. You’ll also have more control over your car insurance coverage and deductibles, so you can find a balance that works best for you.
Lauren Lewthwaite Lauren Lewthwaite has been freelance writing for almost five years writing content that ranges from health to insurance and everything in between. Lauren is also a trained translator in French and English and is a dog-mom to an adorable Australian Shepherd.
