Does Financing a Car Affect Your Insurance?
One of the most common things car owners or soon to be car owners wonder is whether or not financing has any affect on your car insurance. The truth is, car financing can have an affect on your car insurance. Not only will you need to file more paperwork, but you will likely need to list lenders as a loss payee. However, in general, you are not going to need to pay more money to add a loss payee. Below, we will be discussing some of the different ways car financing can affect your insurance. Found out more with Car Finance Blog.
How Car Financing Can Affect Your Insurance:
1. Requirement Of Full Coverage.
If you happen to purchase your vehicle with your own money, you have the option to only purchase the minimum coverage that your state requires. However, you are not going to have the same option available to you if you finance your vehicle at all. The biggest difference between getting financing on a vehicle versus paying it off yourself as it relates to car insurance is that lenders ultimately require both collision coverage and comprehensive coverage in addition to the state minimum requirements that are already out there. Because of this, you are likely going to have to pay out much more in insurance rates compared to a policy that is liability only.
As you can see, this can be a very significant cost increase under different circumstances over the course of a year.
2. Year-Round Insurance.
Another big issue that might impact you if you are looking to finance a car would be the requirement to have year-round insurance. If you are someone that doesn’t use your car all year, you are likely going to opt for lesser coverage during the times when you are not driving it as much or at all. However, a majority of financed cars are going to be required to carry full coverage throughout the entire year until the loan is fully paid off to the lender. While some lenders might allow you to put the vehicles in storage when it is not in use, it is typically going to require you sign a document saying that you will not be driving the vehicle at all. Because of this, the storage savings are likely to add up to a significant amount anyway so it’s not necessarily the best or most viable option. You simply wouldn’t have to deal with something like this if you were to have paid off the vehicle.
3. Extra Paperwork.
When you are financing a vehicle, you are going to have to fill out extra paperwork. After all, the lender is going to end up requiring you to add them to your car insurance policy as a loss payee for protection. If the payments are not made in time, it could lead the lender to place 3rd party car insurance on the vehicle.
Overall, financing a car or vehicle can impact your car insurance. Luckily, listing a loss payee is not something that is going to affect the total interest rate you will be required to pay but you will have many more restrictions and requirements when it comes to insuring your vehicle while being financed.