Paying off your car doesn’t necessarily mean lower insurance prices, although you may be able to make changes to your policy that could lower your rates.

Written by Amy Bobinger

Edited by Jessica Barrett

Updated on Jan 31, 2024

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Paying off your car generally won’t lower your insurance rates
You can adjust your coverage to lower your car insurance rates
Look for ways to save without dropping coverage
FAQs

Your

car insurance

rates won’t go down when you pay off your car, but you might be able to drop gap coverage or raise your deductible to lower your premium.

Paying off your car generally won’t lower your insurance rates

Car insurance companies don’t raise or lower rates based on who holds the title to your car, so paying it off won’t have an impact on your premium. But you still need to notify your insurer if you pay off your car—they’ll remove the lienholder from your policy so you’ll be paid directly if you have to file a claim.

Because paying off a car loan can drop your credit score a few points, there’s a chance your insurance could go up a little at your next renewal, depending on whether you live in an area where insurers can use a
credit-based insurance score
when determining rates. But the impact to your score should be temporary, so your rates may go back down after a few months.

Learn more:

When does car insurance go down?

You can adjust your coverage to lower your car insurance rates

When you’re financing a car, your lender might require you to carry certain coverages or limit the amount of your deductible as part of your loan agreement.

Once you own your vehicle outright, you’re free to choose your coverage options as you see fit.

You can drop gap insurance if you had it

Gap insurance

helps cover the difference between your vehicle’s payout value and the amount left on your car loan if you have a financed vehicle. If you carry gap insurance to the end of your auto loan, you can drop it once your vehicle is paid off.

Gap insurance usually only costs a few dollars a month, so it won’t make a huge difference in your premium—but there’s no point in paying for insurance coverage you don’t need.

Raising your deductible may help lower your premiums

Some lenders set a maximum deductible—typically $500 or less. If a borrower doesn’t pay their deductible, insurance won’t cover some types of claims, so having a minimum deductible helps ensure that drivers can afford to pay their deductible if the vehicle is damaged.

If you had a deductible requirement as part of your loan terms, you can choose a higher deductible when your car is paid off. Just be mindful to choose a deductible that you can afford to pay if you have to make a claim.

It’s a good idea to set up a savings account with enough emergency funds to cover your deductible in case you get into an accident—especially if you choose a higher deductible.

Learn more:

Car insurance deductibles 101: Manage your premium like a pro

Consider keeping full coverage even after your car is paid off

It might be tempting to lower your liability coverage limits or to drop

full coverage

from your policy once it’s no longer required by a lender.

But even though you’ll save on your insurance costs by only carrying the minimum liability insurance required by your state, lowering your car insurance coverage could cost you more in the long run.

Liability insurance helps pay for damages to the other party after an accident that you cause. But because the average cost of car repairs and medical expenses is on the rise, a liability insurance claim can quickly exceed your liability limits. If your coverage won’t pay for all of the other party’s damages, they could sue you for the remainder.

Comprehensive and collision coverage—usually referred to as full coverage—help pay for damage to your vehicle due to an accident, theft, vandalism, falling objects, and more. If you don’t have these coverages as part of your auto insurance policy, you’ll have to pay out-of-pocket to repair or replace your vehicle.

If you drive an older car that’s not worth much, the cost of extra coverage may not be worth it. If your car is worth less than the cost of your car insurance premium, it’s probably fine if you
drop full coverage
from your policy.

Learn more:

10 essential car insurance hacks to lower your rate

Look for ways to save without dropping coverage

Ask your insurance agent about discounts

One convenient way to save on your car insurance premium is with discounts. Discounts can usually be stacked, and the savings can really add up.

You might get

car insurance discounts

for:

Being with your insurance company for a certain amount of time

Maintaining good grades if you’re in high school or college

Bundling your homeowners insurance (or renters insurance) with your auto insurance

Insuring more than one car with the same provider

Paying your premium in full (which might be easier now that you don’t have a car loan)

Signing up for automatic payments

Making monthly payments to your insurer on time

Driving a vehicle equipped with certain safety features

Most insurance providers offer a variety of discounts but they don’t always advertise them. Talk to your insurance agent to see if you qualify for any additional savings.

Comparison shop

Another easy way to save on your car insurance is to get quotes from several different providers.

Comparison shopping helps increase your chances of finding an insurance provider that offers low rates to people who fit your profile.

If you shop with Jerry, you can browse multiple quotes at once so it’s easy to see who can give you the best deal.

You can also turn on Jerry’s reshopping feature, which will automatically notify you before your

car insurance policy renews

if another insurer can offer you a lower premium.

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FAQs

Should I tell my insurance company that I paid off my car?

Yes—they’ll need to remove your lender from your insurance policy. Otherwise, the payment for a claim may go to them instead of you.

What type of insurance should you have on a paid-off car?

For the best protection, you should keep the same insurance you had when your car was still being financed. But you can drop gap coverage and you may opt to raise your deductible.

Should I keep full coverage after I pay off my car?

It’s almost always a good idea to carry full coverage on a vehicle—especially if you wouldn’t be able to afford to replace it on your own. But if you drive a vehicle with a lower value, it may be worth dropping collision and comprehensive from your policy.

Will my car insurance go up when I pay off my car?

Paying off your car loan can cause a temporary drop in your credit score, which could cause your insurance rates to go up. But the impact to your credit is typically minimal and your score should go back to normal within a few months.

What is the benefit of paying off your car loan early?

Depending on your financial situation, paying off your car loan early can save you money—especially if you had a loan with a high interest rate. And once you’re no longer making monthly car payments, you’ll have more flexibility in your budget for things like building your savings.