Car Insurance for a Financed Vehicle

Whether you financed with a bank or the dealership, we'll find you the best coverage.

Car Insurance for a Financed Vehicle


Next to your residence, your car is one of the biggest expenses you can have. So, it shouldn’t surprise you that many car owners are financing or have financed their vehicle via a car loan. But the nature of a financed vehicle does have some insurance implications that vary from an owned or leased vehicle. Not understanding these differences can leave you vulnerable. Let’s explore the ins-and-outs of insuring your financed vehicle.


How to navigate a car loan




What encompasses a financed vehicle?


Once you finally find the vehicle of your dreams, you’ll need a way to pay for it. That can mean using your savings account, or it can mean using some type of lender. If you’re using a car loan from the bank or a dealership, you have a financed vehicle. Basically, you borrow the amount needed to pay for the vehicle and you pay them back, usually with interest. Here are some key definitions to consider when considering a car loan.


  • Loan Principal/Financed Balance: The amount you borrow
  • Interest Rate: Percentage of loan you must pay back in addition to the car loan principal
  • Loan Term: The length of time it will take for you to pay off your car loan.

The amount of these definition can depend entirely on you, your credit score, and the dealership or bank you partner with. But a good general rule of thumb: try to get the shortest loan term with the lowest interest rate and the smallest car loan principal.





What coverage do you need?


The nature of a financed vehicle impacts your insurance options. Because whoever is supplying you the loan will have an invested interest in the survival of the vehicle, they will require “full coverage” for your vehicle. By “full coverage,” a vague term thrown around, we are referring to the following:



Another coverage option you should consider is what’s called gap insurance. Gap insurance covers the gap between what you owe on your car loan and depreciation (what your insurance company will factor when they pay out your claim). This can help reduce any chances of being underwater on your car loan.





What’s the difference between leasing and financing?


The main difference between leasing and financing is the ownership of the vehicle. By financing through a bank or the dealership, you make payments in order to own the vehicle over time. Throughout the length of your car loan, you gain equity in the car as long as you continue to pay your installments. That’s the benefit of financing — you own the vehicle. This can come in handy if you’re planning on selling the vehicle in order to make a down payment on another vehicle. With a lease, however, you make monthly payments but must return the vehicle after the end of your lease.





Does financing a vehicle impact your insurance rate?


In short, no. While your insurance rate is reflective of many things, it doesn’t increase or decrease because you’re financing or leasing your vehicle alone. You do, however, need to inform your insurance company if you’re financing the vehicle.

Usually, whoever is financing your vehicle will want to be listed on the policy as a loss payee or an additional interest. Many times, they’ll even require proof that you have done so.





Should you finance through a dealership or a bank?


While the decision is totally up to you, you have some options when it comes to who you get your car loan through. Here are some tips to consider when thinking about financing your vehicle.


Through the dealership

Going through the dealership you originally buy your car from is typically considered to be easier — but that doesn’t mean cheaper. You’re already at the dealership getting the vehicle and if you finance through them, you can just drive away with the vehicle after you’ve added the insurance. But, because of the nature of the business, the dealership might have an interest rate that’s higher than a banks. A lot of time, the dealership’s financing is simply the bank’s financing and they’re just doing the legwork, which they might mark up for. Still, these rates are at times negotiable.

However, some dealerships offer promotional benefits such as 0% interest financing which a bank probably won’t be able to meet.


Through a bank

A bank can offer a more personal relationship if you choose to finance your car loan through them. Meaning, if you use the bank you already have your account or a line of credit in, they might be willing to work with you if you fall behind on your payment. plans.

Another benefit of a bank is they’re not a business; they’re a financial institution and thus don’t have an insensitive to mark up their interest rates. Their interest rate is locked in.

What you should do, however, get some information (namely, the interest rate of the car loan) ahead of time prior to making a decision. This way, you can calculate how much interest you will be paying for the auto loan over time and let the numbers decide.





How to save:


When you’re making a car payment and insurance payment every month, saving money is important. Let’s break down some quick and easy saving techniques:


Pay Smart:

If you’d rather pay your premium up front, in one bulk amount, you can save an average of $61 per year! That way, you only have to worry about paying your car loan once a month (in addition to all your other bills). But if this is too much of a financial burden, you can still save by paying with your bank account (called EFT).


Savings Based on Method of Payment

Savings with Paid in Full Savings with EFT
$61 $27


Bundle

Bundling your renters or home insurance policy can save you $73-$142 a year on your auto insurance.


Savings on Bundlings

Savings with Renters Savings with Home
$73 $142


Drive safe

Because of the relationship between you and whoever is financing your car loan, it's important to keep the vehicle in good condition. Additionally, accidents and citations can have big impacts to your premium. For most violations and accidents, you’ll be rated (i.e., charged) for 3 years by your insurance company. So, any increased will be tripled. Ouch.


Average Increase in Annual Premium in 2016

Accident/Violation 6 Month Premium Increase
None
Speeding 11 - 15 MPH Over Limit $141
Speeding 16 - 20 MPH Over Limit $153
Speeding 21 - 25 MPH Over Limit $165
At-Fault Accident $306
Reckless Driving $499
Racing $523
DUI $529


Consider Telematics

If you’re a low-mileage and safe driver, you might consider if telematics might be a good money saver for you. Basically, telematics are in-car devices that use the way you drive to determine your premium. While not accepted in every state, you can save quite a bit on your insurance premium.


Company Estimated Savings
Progressive's SnapShot Average of $130
Allstate's Drivewise Average of 10-25%
State Farm's Drive Safe & Save Up to 15%
Esurance's DriveSense Varies
Nationwide's SmartRide Up to 40%
Liberty Mutual's RightTrack Average of 5-30%


Shop Around

It’s important not to become complacent with your insurance company. Shopping around every 6 months is a proven and sure-fire way to save on auto insurance. Only with The Zebra can you see rates from hundreds of different companies at once. Get started today.





Summary: Car insurance for a financed vehicle


Next to a home, a vehicle is a pretty big investment. So, it’s important to make sure all your bases are covered when it comes to insurance. Making sure your vehicle is physically covered through comprehensive and collision coverage is a great way to start. Adding gap insurance can help protect you from depreciation but it can be pricey. Your best bet is to shop around with as many companies at once to see the coverage you want and need a price you can afford. Get started today.


Recent Questions:

Car Insurance for a Financed Vehicle

Can the bank force me to get coverage on my vehicle?

Feb 02, 2018

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