How does a car loan affect your car insurance?
Taking out an auto loan to buy a car means that you are not the only partner in that car. Lenders also have a financial partnership – at least until your car is fully paid for – and they will want to make sure their investment is secured.
This usually means that your lienholder will be listed with you on your car insurance policy. Your lender may need to add certain types of coverage to your policy to protect your shared investment (aka your car).
Many landholders need to add comprehensive and collision coverage to their car insurance policy.
Extensive coverage will cover damage to your vehicles that can occur when not driving, such as falling object damage, fire, hail, wind, vandalism, and theft. Collision coverage covers the damage to your car in an accident, whatever the fault.
If you have bought a new car with an auto loan, you may want to consider adding gap coverage to your auto insurance policy.
If your new car is stolen or totaled, you will no longer have it – but you will still have a car loan. Your insurance will refund you the actual cash value (ACV) of your car, but it may be less than your loan.
Gap Insurance will cover the “gap” between the ACV and your debt, which means you will not be left to pay for a car you no longer have. Your lienholder may need your gap insurance, but if they don’t and you buy a new car with a loan, it can be a smart buy.
File a claim when you have a car loan
When you file a claim with your car insurance and receive a check from your car insurance, that check may be made to both you and your rightful owner. Remember, your lienholder is also listed in your car insurance policy.
Different lienholders will have different requirements, but your lender may require you to submit documentation to prove that you are using the money for car repairs before they approve the check from the insurance company.
Before approving a check, make sure your lienholders know what they need from you, and don’t forget to save any and all documents related to your car repair.
Extensive coverage is another auto insurance add-on that auto lenders typically need. It covers damage to your vehicle due to non-automotive crashes. This can include fire, flooding, vandalism, theft, or even a tree falling on your car and destroying it. The rider will bear the cost of repairs.
Extensive coverage is usually less expensive than collision coverage, but it is subject to all changes related to collision coverage, including the state in which you live, the price of the car, your discount, and your driving record.
It can add as little as $ 100 to your auto insurance premium each year, or it can add hundreds of dollars.
Like collision coverage, you can usually skip it when your loan is repaid, or when the price of the cargoes to a point where paying a higher premium for additional coverage is no longer understandable.