How Multiple Car Loans Can Increase Your Insurance Rates

One of the most expensive household bills is insurance, no matter what type of insurance you are paying for, whether home, car or health insurance. People are constantly questioning how they can save money on car insurance or how much does adding a second car to insurance cost because they want to keep more of their money in their pockets.

Despite constantly searching for ways to save money on car insurance, people continuously make decisions that raise their rates, sometimes without even realizing the consequences. One of those decisions is financing a car or taking out a car loan in order to purchase a newer car.

So although you may not realize it, car loans can be counterproductive to saving money on car insurance

How Financing and Car Insurance Work Against You

Even though life happens and you cannot help but make certain decisions, financing a car probably will hinder the goal of reducing your monthly bills.

In fact, it can actually increase your monthly bills because financing a car completely alters the insurance requirements you must meet. There is very little flexibility and freedom when choosing insurance coverage because your lender will also be regulating your insurance requirements.

Not following their insurance coverage requirements can result in forfeiting your agreement and losing your car which, in itself, can be an added expense.

Often lenders require coverage throughout the entire year, even if you store a vehicle or do not use it. Additionally, lenders require physical damage coverage. This coverage increases your insurance rates if you were not already planning on buying that type of coverage.

You may not be able to easily shop around for insurance coverage when financing a car due to a number of reasons.

#1 – Lenders Require Full Coverage

In most states, there is a minimum coverage requirement for car insurance, but most lenders require more than the minimum. This is the top expense when you insure a car that has a lien on it because lenders require drivers to have comprehensive and collision coverage.

Aside from paying more for the comprehensive and collision coverage, insurers note that most people who are leasing a car need to have a $500 deductible for both coverages. Having a lower deductible usually increases the cost of monthly payments.

If you were to pay off the remaining balance to your car loan, you could be charged a cancellation fee for ending the specific coverage you have on your vehicle. This equals more money out of your pocket.

Now imagine how much money you will spend when you have multiple outstanding auto loans.

#2 – Relocating Can Increase Insurance Costs

Relocating to another city or even moving into another home can present a number of unexpected costs on its own, but moving can even increase your insurance rates. Usually an increase happens if the area you are moving to has more traffic and people or if you are moving somewhere where your car will not be stored in a garage or covered lot.

Surprisingly, even if you are moving across the street from your job and never use your car, you can still be charged the same rates as if you were driving. This can be counterproductive to your saving goals, but because of the lender requirements, you may still have to pay that sum of money to keep your car insured.

#3 – Your Lender Becomes a Payee

Lenders almost always request to be listed as the payee or the additional insured on your insurance policy. So if your car is totaled during a car accident, they will receive the payout from your insurance provider, not you.

Adding your lender to your policy does not cost more money.

But if, for example, you total your car after being hit unexpectedly and the amount of money the insurance company offers does not cover the total of your car loan. Well, the lender will receive the payout, and you will be stuck with a remaining car loan balance without a car.

Now you have to find a way to pay off the remainder of the loan and find a new car. Once you find a new car, you will have to spend more money on insuring that new vehicle as well. So in a matter of a few days, you could be out of thousands of dollars.

#4 – Insurance Lapse Fees from Your Lender

Since your lender is listed as a loss payee on your insurance plan, they will be notified if you lapse or cancel your policy. Similar to how the state charges you fees for not keeping up your car insurance, your lender can do the same.

Being that following certain insurance requirements is a part of your loan agreement, you will be in breach of contract if you lapse on your insurance. A lapse can result in them charging lapse or cancellation fees. The worst-case scenario is that you lose your car or the lender increases your car loan rates.

Beyond the fees implemented on you from your lender, the state will also charge fees and can suspend your registration. So not only will you have to pay your lender, but you will also have to pay your state to avoid having your car towed or ticketing while operating your vehicle.

#5 – Having a Newer or Older Car

If you are financing an older vehicle, your insurance rates may be higher because your car is more of a risk than a newer one. Older cars are prone to breaking down and having more technical difficulties than newer vehicles.

However, on the other hand, newer cars can increase your insurance rates as well.

If you are financing a newer and more expensive car, your insurance provider may charge you more because the expensive car would cost more to fix. Financing alone already spikes your rates, so adding these two factors on top of it only puts the odds against you.

Several Factors Impact Insurance Rates

There are other factors that could make insurance rates higher when you are financing a car such as your credit history, specifically your payment history and debt. Your driving history and any moving violations you have received, and even where you live and work can affect your rates.

One of the most important things you can do to keep your insurance rates low is to be smart with your money. An easy way of being smart with your money means knowing how multiple car loans will impact your rates, and making the right decisions based on that knowledge.




Imani Francies writes and researches for the auto insurance comparison site, She earned a Bachelor of Arts in Film and Media and specializes in various forms of media marketing.


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