rates. But once your contract with your lienholder is no longer a factor, you may be able to drop or alter certain optional types of coverage for a better premium.

How does paying off your car affect your insurance rates?

Paying off your car won’t directly affect your car insurance rates, since your auto insurance provider won’t take the title holder into account when determining your premiums.

If anything, paying off your car could indirectly cause a small increase in your car insurance rates. That’s because paying off your car can cause your credit score to drop slightly, which in turn can increase your rates if your insurance provider uses a

credit-based insurance score

For a better idea of what to expect, here’s how your credit score can impact your monthly insurance rates:

Credit score	Minimum liability	Full coverage
Less than 600	$70	$145
601–699	$65	$132
700+	$62	$121

Regardless, you should always inform your provider when you do pay off your car. Once you do, your insurance company can remove the lienholder from your policy to ensure that you’re paid directly if you need to file a claim.

Adjusting your coverage for a lower rate after paying off your car

While paying off your auto loan won’t directly lower your insurance premiums, you may have the option to drop some optional types of coverage that were previously required by your lienholder.

You can drop gap insurance if you had it

When you have an active loan, you may choose to carry

gap insurance

, which covers the difference between what you owe on your car loan and the actual cash value (ACV) of your vehicle. Many people drop gap insurance before they’ve paid off their loan but if you still carry this coverage, you can drop it after paying off your car.

Gap insurance only costs an average of around $20 a year, so dropping this type of coverage won’t have a huge impact on your overall rates.

Consider keeping full coverage even after paying off your car

After you pay off your loan, any obligation to carry full coverage (that is,

comprehensive insurance

and

collision insurance

) will disappear with your car loan contract. Here’s what’s covered under a full coverage policy:

Comprehensive coverage pays for damages caused to your vehicle by something other than a collision (such as a natural disaster, vandalism, or theft)

Collision coverage pays for damages to your vehicle sustained in a collision

While it may be tempting to drop these optional types of coverage after your lien is out of the picture, it’s rarely a good idea to go without this essential financial protection. Sticking to state minimum

liability coverage

would mean that the financial responsibility for any future vehicle repairs or replacement will fall entirely on you1.

Unless you drive an older vehicle of very low value, it’s a good idea to maintain full coverage for your vehicle.

Raising your deductible may lower your premiums

One thing you can do once your lender contract is up is

choose a new car insurance deductible

. A higher deductible corresponds to lower auto insurance costs since your insurance company will be taking on a lower risk.

Here’s how raising (or lowering!) your car insurance deductible can impact your rates under different insurance providers.

Insurance company	$500	$1,000	$2,500
AAA	$270	$264	$255
Allstate	$241	$228	$224
Nationwide	$185	$181	$179
Progressive	$193	$184	$179
State Auto	$224	$218	$213

Remember, however, that you’ll be responsible for paying your deductible in the event of a car accident. Never raise your deductible more than you can afford to pay out-of-pocket.

Other ways to lower your car insurance rates after paying off your car

If none of these changes to your insurance policy seem feasible, it’s time to consider other options. Here are a few other ways to lower your auto insurance premiums after paying off your financed car.

Check for discount opportunities: Every car insurance company will offer discounts of one kind or another, even if they aren’t directly advertised2. Some of the more common options include

student discounts

safe driver discounts

, and discounts for

bundling

your auto coverage with homeowners, renters, or other insurance products.

Work on your credit score: The better your credit score, the better your car insurance premiums. Even something as simple as staying current on your credit card monthly payments can improve your rates over time as your score increases.

Shop around for a better rate: Once you pay off your car, consider looking for a better premium elsewhere3. You can gather car insurance quotes on your own or via an insurance agent, but it’s way easier when you use an independent broker like

Jerry

to get personalized quotes in a matter of minutes.

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FAQ

Can you change your car insurance policy after paying off your car?

While you can drop some types of optional coverage after paying off your car loan, it’s a good idea to keep as many coverage options in place as possible.

The only type of insurance you should drop after paying off your car is gap insurance, as that type of coverage is specifically for vehicles with a lien. You’ll also be required to keep certain types of insurance, including liability insurance and, in some cases, PIP, uninsured motorist coverage, and/or MedPay.

Does paying off your car improve your credit?

While paying off your car may improve your overall financial situation, it could actually cause a small dip in your credit score. This is because your credit score is based on open lines of credit, so closing a line of credit (ie, paying off your loan) can cause your score to drop temporarily.

Does the value of your car change when you pay it off?

The value of your car will remain the same when you pay it off, at least at first. However, you will receive a larger payout from your insurance company if your car is declared a total loss after you’ve paid it off since none of the money will go to your lender.

Meet our experts

Liz Jenson

Liz Jenson is an insurance writer who specializes in general automotive and insurance topics. Liz’s mission is to produce informative and useful content to help car owners make smart choices when buying cars and car insurance. Since joining Jerry in 2021, Liz has written nearly 4,000 long- and short-form articles on topics including state-specific insurance recommendations, common car insurance questions, and deep dives into vehicle model details.

Before they came to Jerry, Liz was a full-time student at Indiana University, Bloomington working on a double major in English and French.

Amy Bobinger

Licensed Insurance Agent — Expert Insurance Editor

Expert insurance writer and editor Amy Bobinger specializes in car repair, car maintenance, and car insurance. Amy is passionate about creating content that helps consumers navigate challenges related to car ownership and achieve financial success in areas relating to cars.

Amy has over 10 years of writing and editing experience. After several years as a freelance writer, Amy spent four years as an editing fellow at WikiHow, where she co-authored over 600 articles on topics including car maintenance and home ownership. Since joining Jerry’s editorial team in 2022, Amy has edited over 2,500 articles on car insurance, state driving laws, and car repair and maintenance.

SOURCES

https://www.kbb.com/car-advice/insurance/collision-insurance-vehicle-paid/

https://www.iii.org/article/nine-ways-to-lower-your-auto-insurance-costs

https://www.forbes.com/advisor/car-insurance/tips-lower-car-insurance-costs/