Find an answer to this common question
The correct answer to this question is ‘it depends’. Let’s find out on what factors it depends.
If you buy a car with a loan taken from a traditional financial institution like a bank, then you’ll definitely have to do some more paperwork. The institution that is lending you the money to acquire the car will also want to be mentioned as a loss payee or an additional insured on the vehicle. But this is not going to cost you any extra money. And it won’t affect your car insurance rates.
Full coverage for lendersWhen you buy a car with a loan, you cannot choose the kind of coverage you want to buy. Lenders usually need you to get comprehensive coverage, collision coverage over the minimum legal requirements. In this situation, your insurance rates will definitely go up as a result of the loan. Say you bought a car for $10,000 with cash. Later you realized that you need to get a loan as you can’t cover the payments. In this situation, the lender will want all the coverage possible to keep their investment safe.
Reduced use, reduced coverageIf you think that just because you don’t use the car throughout the year, you don’t need coverage for the time, it’s not in use. But you’d be wrong. If you’ve financed the car, the lender will most likely require full coverage until the loan is paid off. You may be required to place the vehicle in storage when it’s not in use, but you’ll also have to sign paperwork that confirms that the car will not be driven during that time. This may save you some money but check with the lender first.
Adding more lendersWhen you take a loan to buy a vehicle, the lending institution will want to be listed on the car’s insurance policy as a loss payee. This is because insurance companies’ mail updates regarding any policy changes to loss payees. Your lender will know of any changes to the policy and also receive updates regarding late payments, coverage changes, and policy cancellation.
Purchasing a new or newer carYour car insurance is definitely going to change if you upgrade to a new car or a newer used car. If you acquire a vehicle that’s more expensive, then your insurance rate will definitely increase. You probably already know that a combination of a large number of factors affect your insurance rate. This means factors like how new the car is, its safety rating and other factors will determine how much you pay. Ask your agent for a quote and include it in your purchase budget. So, it is clear that borrowing money for a car will affect the insurance rates. Let’s recap the major points we covered above.
- Your car insurance depends on a lot of factors including an auto loan
- Adding a loss payee to your insurance policy does not affect the rate
- You require full coverage for a financed vehicle, and this will increase your insurance rate