Question: Does having a bank loan on a car versus owning it outright affect your car insurance rates?

Answer:  Whether you financed your car with a bank loan or you bought it outright with cash shouldn’t make a difference in your car insurance rates since this information isn’t a rating factor used to calculate your premium.

You might find that you’ll carry more insurance coverages if you finance a car, which in turn may cause your auto insurance premiums to be higher than if you bought a car with cash and chose less coverage.

When you get a car loan, it’s usually required in your finance agreement that you carry not only state-mandated coverages, but also physical damage coverages of collision and comprehensive and must choose a deductible of $500 or less for these coverages.

In cases where you lease a vehicle, the leasing company will normally require that you carry collision and comprehensive as well as higher liability limits in the amounts of $100,000 per person and $300,000 per accident for bodily injury liability and $50,000 for property damage liability.

Remember, these are requirements from the financier, not the insurance company, so it’s the higher limits and extra coverages that will cause your car insurance to cost more, not the fact that you don’t own the car outright.

If you do buy a car with cash, then you can decide, all on your own, if you want more than the state minimum car insurance requirements.

If your car is newer, you will normally want physical damage coverages to protect your car, but you may choose deductibles of over $500 to save money, since a higher deductible tends to give your lower rates for collision and comprehensive coverages.

While if your car is financed or owned isn’t a rating factor, you may find that when you apply for a policy some car insurance companies will ask if your car is fully owned or has a lienholder on it. If you say you’re financed, then these car insurance companies will only offer you a policy that includes collision and comprehensive.

No matter if you have a bank loan on or not on your car, the best way to get the cheapest car insurance rates is to shop around.

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Penny Gusner
Consumer Analyst/Insurance Expert

Penny has been working in the car insurance business for more than 10 years and has become an expert on procedures, rates, policies and claims. She has seen it all, and working with from its inception, she researches the routine and the bizarre with equal enthusiasm. She has three very active children and a husband with a zeal for quirky cars.