Does Financing a Car Affect Insurance Rates?

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Financing a car usually means higher car insurance rates because lenders will require you to carry full-coverage insurance.
Getting a loan for a car can happen before you buy or after you own. Car loans can be obtained from lenders such as:
  • Banks
  • Credit unions
  • Car dealerships
  • Independent lenders
No matter where you get your loan, having one will likely impact the cost of your car insurance. Read on to learn how.
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Car financing with insurance

When you get a car loan, the lender will want the vehicle insured just as much as you do. After all, they own the car. Because of this, most will require you to purchase full-coverage insurance, including collision coverage and comprehensive coverage. This makes them a "loss payee"–a person or entity that is entitled to the insurance payout in the event of an accident.
Adopting this model is somewhat universal among lenders for cars, meaning you’re likely going to see higher insurance costs when financing.
For example, let’s say you want to trade in the car you own outright for something a little newer, when you find just what you’re looking for at an area dealership. However, when the dealer appraises your car, they determine it to be less valuable than you would have hoped for, thus making the new car out of reach.
You decide to finance the remainder and buy the new car, but the financing company requires full coverage–something you didn’t have before with your previous car. Suddenly, you have a new car, but while you're financing it, you're also paying more for insurance.
It’s important to note that in this situation, your car insurance rates would likely increase even more because the newer vehicle carries more value.
You can compare quotes from insurance companies that offer full-coverage your vehicle with Jerry. Download the app to find the cheapest rates for your new vehicle.
Key Takeaway Make sure that you’re prepared to purchase full-coverage insurance at higher rates before financing a car.

Financing your car after buying it

If you buy a car outright but find that the cost is deeply affecting your finances, you can still get a car loan after the fact. There are plenty of lenders out there that will grant you a car loan after you’ve purchased a vehicle, but usually, they carry the requirement that you obtain full-coverage car insurance.
In this situation, you'll need to expand your car insurance policy to include full-coverage before getting your car loan. This will surely increase your insurance rates.

Car financing with low insurance: Get a personal loan

Not all car loans require full-coverage car insurance. If the car you're buying isn't going to be used for regular driving, you may not need every type of insurance, so long as you get a personal loan.
Remember this before you meet with your lender, as getting a personal loan could be a workaround–especially if the car in question is a fair-weather classic car.
For example, let’s say you find your dream muscle car, a true antique. You don’t have enough cash to meet the seller’s asking price, so you head to the bank for an auto loan. Even though the car is older and will likely spend most of its time tucked away in a garage or shop, the industry standard for auto loans is to require full-coverage insurance, thus requiring you to spend more on your premiums.
However, if you qualify for a personal loan, you can circumvent the full-coverage requirement if you’re okay with the financial risk of liability coverage only.
The best way to determine if financing a car will affect your car insurance rates is to assume that whatever lender you work with for the loan will require you to carry full coverage. Knowing this can help you get a better handle on your monthly expenses.
Key Takeaway By taking out a personal loan, you can opt for liability-only coverage instead of full-coverage.
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