Financing a car doesn't automatically raise your insurance premiums, but needing more coverage can increase your total costs.
Car Insurance: Financed vs. Owned
How you buy your car affects your insurance. Financed and owned cars have different insurance requirements because the number of people with a financial interest in them differs.
With an outright-owned car, you’re usually the only person with a financial interest. This means you can choose what insurance coverage your car should have. As long as you have the required auto insurance coverage, you can add extra coverage or skip it, depending on your budget and needs.
With financed cars, your lender also has a financial interest in the vehicle. Most auto loan lenders require collision and comprehensive insurance.
Getting Insurance Coverage for Financed Cars
You need the insurance coverage your lender requires. Different lenders have different coverage requirements.
Check with your auto finance provider for more details.
Do Financed Cars Come With Insurance?
Financed cars don’t come with insurance by default. Some lenders or dealerships may offer insurance products, but auto insurance is not included in financing. You must obtain your own policy.
In most cases, you need to get a policy that meets the lender’s requirements on your own. Lenders usually require mandatory, comprehensive and collision coverage because they need to protect their financial interest in the vehicle.
How to Deal With Accidents When Driving a Financed Car
The steps for dealing with an accident while driving a financed car are generally the same as when driving an owned car. However, you may need to inform your lender, depending on your loan agreement, especially following major repairs or a total loss.
Read our article on what to do after a car accident to ensure you’re prepared.
Does Having a Financed Car Affect My Premiums?
Financing a car doesn’t directly increase your insurance premiums, but lender-required coverage such as collision and comprehensive may increase your overall cost. You may also need a higher coverage limit if the lender requires it, which can raise your auto insurance rates.
Can I Modify My Policy Once I Repay My Auto Loan?
You can modify your insurance policy once you repay your auto loan. The lender no longer has a financial interest in the vehicle, so you can reduce or add coverage based on your needs and budget.
Does Buying a Car Outright Affect My Premiums?
Owning a car outright doesn’t directly lower your insurance premium, but you may choose less coverage, which can reduce your overall cost.