There is nothing more exciting and fulfilling than paying that final installment on your car loan. Sigh. I can't wait until that day, but congratulations to those who have met that milestone in their lives. So now what? Will you insurance decrease now that you have paid off your car loan? Let's discuss...
I have had this question asked several times and it is surprisingly one of the toughest questions to answer. Just imagine you have this person sitting in front of you or on the phone elated that they have paid off their car and you have to spoil to moment by saying, "No, paying off your car insurance doesn't automatically cause your rates to be lower." I know what you are thinking, "But my mom's insurance decreased when she finished paying off her car." Yes, that may be sure, but did you ask your mom why her insurance decreased once she paid off her car?
When a person has an auto loan or their vehicle is financed they are typically required to carry full coverage insurance. Full coverage is having both comprehensive and collision coverage. Most finance companies require a $500 or less deductible. Once an auto loan is paid off, that person is no longer required to carry these additional coverages. That person may also decide to keep those coverages, but just raise their deductibles since the deductible amount is no longer determined by the finance company. Most people decide to carry liability once their loan has been paid off. This is why insurance costs decrease for some. It is because they have opted to carry less coverage. They have opted to carry only what the state requires. Just enough to drive legally.
So, it in conclusion, the only way your car insurance can decrease after paying your auto loan is if you decide to no longer carry the required comprehensive and collision coverage or to raise the deductible amount. This is why most people have a decrease in their rates. It's because they have decreased their coverage. BUT this is not something that I would suggest. Even if your vehicle is paid off, it is good to keep those coverages. If you have an accident, it is good to have something with will allow your vehicle to be repaired or replaced.
I once had a costumer tell me that it is not fair that insurance companies do not reward them with lower rates when their vehicle has been paid off. My response was it is also not fair penalize a person for having a car that isn't paid off. Just think about it that way for a minute. No matter what condition your vehicle is in financed, leased, or owned outright, we have plenty of discounts to assist you with your insurance needs.
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