No matter how much you love your car, at some point you’ll want to trade it in for a newer model, or even just upgrade to a better model. As you’re researching your options for a new vehicle, you may be wondering Is Car Insurance Cheaper When You Pay Off Your Car? The answer is yes and there are a few reasons why.
Lower Car Insurance Premiums
The most obvious reason car insurance is cheaper when you pay off your car is because the cost of your car insurance premiums will be lower. When you finance a car, your lender will require you to carry full coverage car insurance. This type of insurance is more expensive than the minimum liability coverage most states require drivers to have. Once you’ve paid off your car, you’ll be able to switch to a cheaper liability-only policy.
No Need for Gap Insurance
Another way paying off your car can lead to cheaper car insurance is by eliminating the need for gap insurance. Gap insurance is an optional policy – that pays the difference between the cash value of your car and the amount you owe on; it when your car is totaled in an accident or stolen. It’s often required when you finance a new car and it might add significant cost to your car insurance premiums. When you pay off the car, you won’t need the coverage and can drop it from your policy.
Better Credit Score and Insurance Rates
Paying off your car can also lead to lower car insurance premiums by improving your credit score. Your credit score is one of the main factors insurers use to determine your car insurance rates. When you pay off a car loan, you’ll be able to improve your credit score and – that might lead to lower car insurance premiums.
Discounts for Owning a Paid-Off Vehicle
In addition to lower premiums, you may also be able to get discounted car insurance for owning a paid-off vehicle. Many insurers offer discounts for owning a fully-paid vehicle because it reduces the risk of the driver defaulting on; the loan. – That means you could get a discounted rate just for being a responsible consumer.
Lower Maintenance Costs
Finally, car insurance is cheaper when you pay off your car because you won’t have to worry about paying for expensive repairs and maintenance. When you finance a car, you’ll typically have to pay for regular maintenance and repairs out-of-pocket. When you pay off your car, you won’t have to worry about paying for those costs, – that can make a big difference in your car insurance premiums.
Paying off your car can be a great way to save money on; car insurance. Not only can you save money on; your premiums by switching to a cheaper liability-only policy, but you may also be able to get discounts for owning a paid-off vehicle and improve your credit score. It’s definitely worth looking into when you’re looking to save money on; car insurance.
