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Do Auto Insurance Premiums Change When You Pay Off Your Loan?

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When you purchase a car with a loan, you will have to make the monthly payments until you pay off the loan in full. For some people, this takes 36 months. For others, it takes up to 84 months. In any case, you might wonder if paying off your loan affects your auto insurance premiums. Here are several things to know about this question.

Paying Off Your Loan Does Not Automatically Change Things

The first thing you should know is that paying off your loan does not automatically change anything with your insurance. It eliminates an expense, but paying off your loan does not directly affect your auto insurance policy.

You No Longer Have a Lender Providing Requirements

When you make the last payment of a loan, it feels good. It frees up your budget by eliminating one monthly expense. Once you pay off your loan, you do not have a lender making requirements that you must follow. One of the conditions that lenders institute is that borrowers must have full-coverage insurance on their vehicles. You must abide by this requirement until you pay off your loan. At that point, you will not have a lender. Therefore, you will not have this rule.

You Can Change Your Policy to Lower Your Auto Insurance

You can see that paying off a loan does not directly affect your auto insurance, but it does affect the rules you must follow. As a result, you have the freedom to change your auto insurance after paying off your loan. If you make the right changes, you will see a significant decrease in your rates.

The first thing you can do is drop the collision coverage. Collision pays your damages if you cause a car wreck. When you have a loan, your lender requires this coverage. When you do not have a loan, you can drop it to save money on your plan.

The second type of coverage you can eliminate is your comprehensive coverage. This coverage protects you against animal collisions, storm damage, and theft. While lenders require this, you do not have to keep it after paying off your loan. If you remove it from your plan, you will save even more money.

You can talk to a personal auto insurance agent about this and other questions you might have. By speaking to an agent, you can learn other ways to cut your auto insurance costs. 


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