When you finally make that last payment on your auto loan, it’s a moment of triumph. You own your car outright! But does this milestone also mean a decrease in your auto insurance costs? Let’s delve into this query and unravel the effects of paying off your auto loan on your insurance premiums.
How Clearing Your Loan Affects Your Car Insurance
Most people, while repaying their auto loan, are mandated to have full coverage insurance. This includes both comprehensive and collision coverage, often with a deductible of $500 or less, as required by finance companies. After your auto loan is fully paid, you are no longer under this obligation.
Many choose to switch to liability coverage, which is the minimum required by the state, once their auto loan is paid off. This transition often results in lower insurance costs because they are now opting for less coverage. But it’s not a one-size-fits-all situation. Whether your car insurance goes down when you pay off your loan heavily depends on the choices you make regarding your insurance coverage post-loan repayment.
What to Do After Paying Off Your Car Insurance Policy
Paying off your auto loan gives you the flexibility to alter your insurance policy. Here are a few ways you could save on your insurance:
- Update Deductible Amounts: With no lienholders to dictate terms, you can choose to increase your deductibles. This decision can lower your annual insurance rate. However, be cautious and only raise your deductible to an amount you can afford to pay out-of-pocket in case of a claim.
- Cancel Unnecessary Coverages: Coverages like gap insurance, which covers the difference between your car loan amount and the insurance payout in total loss situations, become irrelevant once your loan is paid off.
Comprehensive and Collision Coverage After Paying Off Your Car Loan
Technically, you are not required to carry comprehensive or collision coverage after your car loan is paid off. However, keeping these coverages might be a wise decision depending on your financial situation, the value of your vehicle, and your credit score.
Collision insurance is beneficial in various scenarios, such as accidents with stationary objects, single-car accidents, or collisions where you’re at fault or the other driver is underinsured. Comprehensive insurance, on the other hand, covers situations like theft, vandalism, natural disasters, animal-related damages, and glass damage.
Get Your Decatur Auto Insurance Today!
Always remember, while paying off your car loan does bring a sense of financial relief, it also brings new decisions regarding your auto insurance. Choose Focus Insurance Group for reliable auto insurance in Decatur, GA. Secure your car with us and drive with confidence.