For many people, borrowing may be the only way to purchase the car they desire. Lienholders typically require adequate insurance protection for the vehicle, which serves as collateral for the loan. This generally entails purchasing Comprehensive, Collision, and Gap insurance in addition to Liability coverage. While there is nothing wrong with obtaining a good policy for a financed vehicle, it can be expensive.
It is common for many dealerships to arrange financing and suggest an insurance agent for customers. If this was the case and you chose a policy recommended by an agent affiliated with the dealership or the finance company, they may not have shopped around enough for you. When it is time for renewal, you can do a much better job on your own online or through an independent agent.
Switching auto insurance companies is usually not an issue as long as you maintain the coverage required by the lender. You may obtain alternative quotes and see if they can reduce costs. Thus, you have the option to lower the burden a bit by obtaining the same coverage elsewhere. Regardless of whether you have an auto loan or not, you should frequently check to ensure that you are not overpaying for coverage.
Would lenders allow dropping vehicle insurance coverage?
If you borrowed on the automobile, your lienholder’s interest has already been noted on the policy. They would be notified if you dropped Collision, Comprehensive, or Gap (if applicable) coverage. They would want you to reinstate it. Failing to do so, they would arrange forced-placed auto insurance, which would be more expensive for you to pay. It would not be advisable to drop coverage without prior lender consent in case of a finance automobile.
You must pay the lender in full if a claim settlement does not cover the outstanding loan amount or you lack insurance coverage. Therefore, you should appreciate the benefits of adequate coverage that protects you against financial loss.
There is a possibility that your lender has already agreed to higher deductibles but set an upper limit of around $1,000. You can raise the deductibles to $1,000 and see how your premiums change. You should only do this if you have at least $2,000 in your savings account in case you have to pay deductibles twice in a policy period.
Pay off old car loans to reduce insurance costs
Early settlement can save you money on interest and premiums. If you arranged the loan several years ago, it may be time to revisit it and see where you stand. If you can afford to pay it off, it may be time to consider dropping Collision and Comprehensive coverage. You can always obtain a quote for the level of coverage you believe is appropriate and compare prices.
Once the loan is paid off and the lienholder is removed, you are free to look for the best value car insurance. You most likely will not require as much coverage as you did when you were locked into a finance deal. However, you will still need to carry state required minimum coverage to be able to drive legally.
When determining whether to decrease your car insurance coverage, consider your car’s value and your financial position. The following circumstances may indicate that dropping comprehensive and collision coverage is more cost-effective:
- Your car’s value depreciated a lot: If your vehicle is older and has lost much of its value, reducing your coverage may make sense.
- You have enough savings: If you are confident that you have enough money to repair or replace your car if something happens to it.
People frequently overlook a few things when they are eager to get behind the wheel of a new car and accept expensive interest rates, borrowing terms and auto insurance. It may be time to revisit your decision and make changes. The earlier you deal with it, the more you can save in several areas.
Apart from the above financed car specific recommendations to reduce vehicle insurance costs, there are many other ways to manage lower rates. Looking for discounts you can qualify for, improving credit score, paying the premium in full, bundling policies and even taking advanced driving courses can help.