Auto loans and the impact on insurance rates: what you need to know

States vary, but you may need to purchase collision and comprehensive insurance if you have a car loan. What if you paid off your car loan? Will your prices go down? (iStock)

Almost all states have minimum requirements for auto insurance coverage. But the decision to purchase other types of coverage, such as collision and comprehensive, may be up to you. However, if you have a car loan, your lender will most likely require you to have both collision coverage and full coverage on your policy.

But when you pay off your loan, you have options that can lower your rates, such as reducing the amount of coverage or eliminating collisions altogether.

Not sure if you are getting the best rates? Visit Credible to compare auto insurance companies and shop floor plans.


Can insurance rates drop if I reimburse my car?

Many people think that once their car loan is paid off, their insurance rates will go down. In general, this is true. But until you pay off your loan, the holder of the title or lien – usually a bank – will likely need standard and most likely comprehensive collision coverage as well.

Once you own your car, you are free to either reduce the amount of this coverage or abandon all perils and collision coverage entirely, reducing your insurance rates. If your car has depreciated, insurance may also cost less. Plus, you can also improve your driving record to lower your fares.

Whether you’ve paid off your car loan or still have one, you can explore the prices and find the right car insurance plan that matches your needs on Credible.


How does collision and comprehensive coverage affect my rates?

Comprehensive coverage and Collision coverage are separate optional coverages that allow you to make a claim for damage or total loss of your vehicle, even though you are not to blame.

Collision coverage protects your vehicle if:

  • You hit another vehicle
  • Another vehicle hits your car
  • You unintentionally drive, turn over or overturn your vehicle
  • You hit a fixed object, like a tree

Full coverage protects your vehicle against:

  • Theft and vandalism
  • Glass breakage
  • Damage caused by a propelled object, such as a falling rock
  • Hitting an animal
  • Fire and flood
  • Damage from natural events, such as a tornado

Almost all states require some level of auto insurance, with the exception of New Hampshire and Virginia. In New Hampshire, you are not required to purchase auto insurance, but you are financially obligated to compensate anyone injured as a result of your driving. In Virginia, you have the choice of maintaining auto insurance or assuming the risk of driving without insurance and paying an uninsured motor vehicle (UMV) fee of $ 500.

But because collision and multi-peril coverage are optional, if you choose to add them to your policy or if your insurer requires this coverage for as long as you are paying on your loan, your insurance rates will be affected.

How can I lower my auto insurance rates?

In addition to lowering your coverage or giving up collision and full coverage entirely, you can lower your auto insurance rates in other ways as well.

  1. Compare the prices. A market like Credible offers a way to explore insurance rates and plans all in one place.
  2. Pay a higher deductible. You’ll pay more up front if you’re involved in an accident, but your insurance premiums will be lower overall if you choose to pay a higher deductible.
  3. Consolidate insurance policies. If you have purchased a home insurance policy with a business, ask to consolidate your auto insurance. Most insurance companies will give you a break from your total insurance costs. It also works if you own multiple vehicles or are a long-time customer.
  4. Earn mileage discounts. You can get a reduction if you drive less than the standard number of kilometers each year.
  5. Maintain or improve your credit. Some insurers will lower your insurance costs if you maintain a good credit rating or work to improve your credit.
  6. Keep a clean driving record. Most insurance companies offer discounts to people with a clean driving record.
  7. Discover other discounts. There are many other ways to lower your insurance costs, including maintaining good grades in school, taking a defensive driving course, and adding anti-theft and security equipment to your vehicle.


Choosing a new auto insurance? Here are 6 types of cover policies

If you’re choosing new auto insurance, changing insurance, or looking for a new insurance company, there are 6 types of coverage you’ll want to explore. Depending on your state minimums, certain coverages are required. But all of them are meant to protect you against financial loss in the event of an accident.

  1. Liability coverage. Liability coverage is mandatory in most states. It pays for damage to another vehicle, another structure or injuries to a person if you are at fault.
  2. Collision coverage. Collision coverage covers damage to your vehicle if you are involved in an accident. It does not cover a vehicle or object that you may have struck.
  3. Full coverage. This coverage covers damage caused to your vehicle not by a collision but by damage caused by weather events, such as hail or a tornado.
  4. Coverage of medical payments. If you are the victim of an accident, this coverage helps pay for medical expenses incurred by you or a passenger.
  5. Injury Protection (PIP). Similar to medical insurance, PIP insurance helps pay for medical bills or lost wages. This coverage is only available in certain states.
  6. Coverage for uninsured and underinsured motorists. These covers help pay for damage to your vehicle or medical bills you incur if you are involved in an accident and the other driver is uninsured or underinsured.
  7. Gap insurance. Gap coverage is optional coverage that pays the difference to replace your totaled or stolen vehicle.

Thinking of paying too much for your auto insurance? You can check online through Credible’s partners.

Final thoughts

If you’ve recently paid off your car loan, you may be able to lower your rates by reducing or eliminating collisions and comprehensive coverage. There are other ways to lower your rates – by consolidating your insurance policies, keeping a clean driving record, increasing your deductible and more. Get a better rate by visiting Credible and comparing plans from multiple insurance companies in one place.


Have a finance-related question, but you don’t know who to ask? Email the Credible Money Expert at and your question could be answered by Credible in our Money Expert column.

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