For many people, a car is one of the most expensive assets. So, it’s not new that many vehicle owners choose to purchase their car through an auto loan, instead of buying the vehicle upfront at full price. Car financing is an excellent way to get a car of your choice while keeping your monthly expenses minimal.
Although car loans can be a useful means to acquire a vehicle, you might not understand what to expect from the procedure if you have never applied for a vehicle loan before. The nature of auto financing has some insurance implications. A lack of knowledge of the distinctions can put you at risk.
You can be confident in your options for automobile insurance when you understand the basics of financed cars. Let’s explore how to get insurance for a financed car.
What Does Financing A Vehicle Mean?
When you finance a vehicle, a lender, possibly a bank, dealership, or other financing establishments, you can purchase the vehicle on credit in return for a regular pledge to pay until the payment has been made fully. Once you are done with the payment plan, you possess the vehicle outright.
Simply put, once you find your dream car, you need a way to acquire it. That can imply using your money, or taking out a loan. If you’re using an auto loan from either bank or a dealership, then, it’s a “financed vehicle” — you borrow the amount required to buy the car, and you pay the bank or dealership back in installments, often with interest.
Over the period of your car loan, you gain equity in the car so far you continue your installment payments. This can be beneficial if you plan to sell the car to make a down payment on another car later on.
A Bank Financing Vs Dealership Auto Loan?
While the decision is yours, you have choices as to which party by which you get an auto loan. Below are two major means of getting insurance when it comes to financing your vehicle.
1. Financing Via a Bank Auto Loan
A bank may give you a more personalized vehicle loan if you have a good credit score from your bank, but remember the bank might take action with you if you’re lagging behind on your payments. Before making a decision, get information through a pre-authorization — which will list the vehicle loan interest rate. Estimate the interest rate you’ll pay overtime on the car loan and let an expert guide you.
2. Financing Through the Dealership
Going through the dealership from which you bought the vehicle at first is usually considered the easiest way to finance a vehicle. But the offered interest rate of the dealership might be more than the bank’s own. Sometimes, dealerships provide bank financing with a markup up front. These amounts may be negotiable. Also, some dealerships give promotional advantages — like 0% interest financing — a bank may not be able to meet.
When you finance, you have to remember that you are responsible for the loan balance even if you decide to trade it in or sell it.
Here are some vital terms to keep in mind when considering financing your car.
- Loan principal/: This is otherwise called financed balance. It’s the actual amount you borrow
- Interest rate: The loan percentage you must pay back with the vehicle loan principal
- A vehicle title: This is a legal document containing information about ownership and its vehicle. This title’s Information ranges from the vehicle identification number (VIN); model of the vehicle, and the year; the vehicle owner and the lending institute.
- Loan term: The duration it takes to pay back your vehicle loan
These values depend exclusively on you, your bank or dealership partner, and your credit score. Generally, try to get the shortest loan term with the least interest rate and the minimum principal car loan.
How to Buy Insurance for a Financed Vehicle
Purchasing insurance for a financed vehicle is the same procedure as purchasing it for any vehicle. Once you estimate your coverage requirements, reach out to a couple of insurance providers to find out the amount they charge. Select a policy that suits your budget, and your lender’s requirements. If you are unsure as to what the policy covers or whether it meets your lender’s minimum coverage regulations, it’s always advisable to contact the lender.
What Insurance Do You Need for A Financed Vehicle?
When you have a loan on your car, your financial organization will possibly ask that you get full coverage insurance. This is because your lender technically owns the vehicle— you do not own it. Hence, the financial organization needs to be sure you’ll be financially capable of fixing the damage or pay back the loan if the car is dented or totaled.
This is why collision coverage and comprehensive coverage are often required if your car is financed. Also, lenders usually request higher levels of liability coverage. Basically, the types of vehicle insurance coverage required when your vehicle is financed include the following:
1. Comprehensive Coverage: This is also known as other-than-collision coverage, comprehensive coverage is established to pay for non-collision injuries, such as theft, animal damage, vandalism, and storm damage.
2. Collision Coverage: Collision coverage is established to pay for damages that happen from collisions with other vehicles and immobile objects, no matter who is responsible.
3. Liability Coverage: Liability insurance pays up to the policy limits for damages you cause to others. This is divided into two forms: property damage liability and bodily injury liability, both of which typically have the lowest limits required by regulation.
4. Gap insurance: It is another coverage option worth considering. This requirement entails the gap between what is owed on your vehicle loan and depreciation (what your insurance corporation will reason about when they pay your claim). This decreases the probability of your being financially limited on your vehicle loan in case of an accident.
How to Save When Financing a Vehicle
When you’re on the hook for monthly vehicle payments and insurance premiums, saving money is crucial. Although paying for full coverage required for vehicle insurance is usually more costly, the following are some quick and easy ways to save on car insurance while meeting loan requirements simultaneously.
1. Compare Quotes
Purchasing car insurance could potentially net you a lesser premium. Vehicle insurance companies all charge various rates for the same coverage, therefore comparing quotes could assist you to get the most economical car insurance company that suits your requirements. This is an excellent way to potentially save on vehicle insurance.
2. Consider How You Pay
Numerous insurance companies give discounts if you pay your premium in bigger installments, particularly if you pay fully. And if you choose to pay monthly, you can lower your bill by signing up for payments automatically.
3. Drive Safely
A history of accidents, tickets, or DUI convictions may make insurance companies consider you a high-risk driver. Even when you are not high-risk, you may likely see a surcharge on your policy for driving occurrences.
4. Consider Telematics
Car insurance telematics programs are designed to track your driving behavior — typically including your speed, your driving hours, hard brakes, quick accelerations, and stationary time — and if you are a harmless driver, you may possibly earn a personalized discount. Ensure you know your company’s rules, though, as some insurers will add to your premium if the records show unsafe driving habits.
When it comes to car insurance coverage, make sure all your bases are covered. Start by ensuring your car is physically protected through comprehensive collision coverage. While gap insurance can be expensive, it can help protect you from depreciation.
Overall, your best bet is to compare rates from several insurance companies to get the right coverage at the right cost.