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Car insurance after paying off your loan
How paying off your car loan changes your car insurance rates.
Paying off your car loan is a huge accomplishment, and you’ll save money each month now that you don’t have a car payment. But you could save even more. The insurance rates for a paid-off car are typically much lower than a financed one, and since you’re reevaluating your auto policy anyway, it may be time to see how much you can save on your car insurance policy without a loan company dictating your coverage.
How does car insurance change after paying off your loan?
When you are still paying off a car loan, your lender’s name is also on the policy because they’ve placed a lien on your car until the loan is satisfied. Now that your car is paid off, you need to let your insurance company know to take the lender’s name off the policy. Then, you can discuss what changes you may want to make so that your policy can better meet your needs.
How does paying off your car loan affect car insurance rates?
Now that your car no longer has a lien against it, it’s time to find new ways to save.
- You don’t have to meet loan requirements. Your lender probably required a minimum level of coverage. But now that you don’t have to meet those requirements, you may consider dropping coverage options you no longer need.
- You can drop gap insurance. After you pay off your car, you can drop gap insurance from your policy if you haven’t already. But you might need to replace it with roadside assistance after your manufacturer’s warranty runs out.
- Your car’s value has depreciated. Since your loan is paid off, you can insure for your car’s true value, which has depreciated, rather than the value of the loan. If your car’s value has lowered significantly, that could lower your insurance premiums, and you might not need the same liability limits.
- You may have some age and life changes. A lot can happen over several years of a standard auto loan. If you haven’t revisited the terms of your insurance since you bought your car, it’s possible your age, marital status and other life factors may help to lower your rates. Or you may be eligible for discounts you didn’t qualify for before.
Compare car insurance rates after paying off your loan
Get cheap car insurance after paying off your loan
Ask your agent about the following ways to save on your insurance premiums:
- Increase your deductible. Now that you don’t have a car payment, you may be able to set aside money for a few months to save up for a larger deductible that would lower your premium.
- Ask for a discount. This is a great time to sift through the discounts your insurance company offers and see if any of them apply to you.
- Evaluate your coverage. Depending on the age and value of your car, it might be time to decide if you still need some of the higher-priced full coverage options you wanted when your car was newer, such as new car replacement.
- Shop around. Compare your current company’s offer with quotes from other insurance providers to see if you could be getting a better deal elsewhere.
What to watch out for with car insurance after paying off your loan.
Before you celebrate your lower insurance premiums, make sure you know what to watch out for as you renegotiate your coverage.
- Dropping coverage. You may be tempted to drop your collision or comprehensive coverage now that it’s no longer required. But you should take the time to figure out whether the car’s value is worth the additional money you’ll spend in premiums before making a change that could put you at risk.
- Bad driving record. If you’ve gotten tickets or demerits against your license, you could see your premiums go higher instead of lower when your insurance company does a check.
Once you’ve taken a minute to celebrate the accomplishment of paying off an auto loan, it’s time to call your insurance agent to see where you can save.
But before you update your coverage with your existing provider, compare your car insurance policy with what other insurers have to offer. That way, you’ll be sure you’re getting the right coverage for you at the best price.
Common questions about car insurance after paying off your loan
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