DOES FINANCING A CAR AFFECT YOUR CAR INSURANCE?

Many consumers want to know if financing a car, compared to buying it outright, affects the cost of car insurance. The answer is yes, and no. The cost of the insurance premium does not go up at all, but the requirements needed in the policy does. The insurance company does not change anything that they do. The person that financed your car or truck will require you to upgrade your policy, which does cause an increase in the premium that you will have to pay out of your pocket.

Full coverage insurance is required to protect the bank or lending agency from losing money if something should happen. The car or truck will be covered if any damages are sustained, whether you are at fault or someone else is to blame. This coverage has a large premium cost, but it protects both of you from losing out. If the car is totaled, then the insurance company will be paid off and you will be able to replace it on a new loan.

Many lenders will also require a deductible amount that they have preset within the policy. It may be higher than you are used to so if you get into a fender bender you will have to pay out of pocket. This is not necessarily a bad thing, though. Having a higher deductible will decrease the cost of the premium because the insurance company will pay less if an accident does occur. When purchasing a policy make sure you check the requirement. If it is too high, find a new insurance agent by using a company that will do car insurance compare charts.

Year around coverage will also be needed. Even if you only drive the vehicle during a few months of the year. For example, a sports car that you put in the garage during the winter. Your old insurance may have allowed you to pay less during the off months, but when it is being financed you will have to have full coverage year-round. There are exceptions to this rule, though. Some agents will be able to work with you if you can show that it is parked. They can have you put a device in the car to track its movements.

You cannot change this policy down to the state-required amounts because collision and comprehensive coverage will help pay for any type of damage. Most lenders will also demand to be put as a secondary on the policy. This allows then to collect money directly from the insurance company to collect the money owed to them before any checks are cut for the policyholder.

To wrap up the question asked in the title the insurance companies to not increase your premium if you are financing a car. The lender, however, will put stipulations onto the insurance plan that will increase the cost. You will usually have to show proof of the insurance before driving the car off the lot, so there is no way around this required increase. When purchasing a vehicle and financing it you know that having a premium increase is involved so you should be budgeting it into the monthly cost.

(Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)