Does paying off your car loan reduce your car insurance?
Cars don’t just run on petrol, they run on money … or at least that’s what it can feel like when you’re totalling up the costs of owning a car. You have to budget for running and maintenance costs as well as insurance.
When you take out a car loan, you’re required to have comprehensive insurance cover on your new car. That’s because the lender wants to make sure they’ll recoup the outstanding loan balance should something happen to your car.
But does car insurance cost more if you have a car loan?
Let’s find out.
How much does car insurance cost?
It’s difficult to put an average cost to car insurance as premiums vary widely depending on the driver’s age, gender and postcode among a whole host of other factors.
Insurers also assess and price risk differently, so you’d probably be better off asking ‘how long’s a piece of string?’
But, according to the Australian Automobile Association, the average weekly cost of comprehensive cost insurance in December 2019 across all capitals was $24.87. That works out at an average of around $1,300 per year.
Does car insurance cost more if you have a car loan?
Insurers factor many things into their calculations when they work out your premiums, including your age, the car you drive and where it’s parked overnight. This is so they can figure out the likelihood of you making a claim.
What’s the impact of car finance?
To find out, we got two quotes for comprehensive cover on a two-year-old Nissan Juke:
- With financing, comprehensive insurance cost: $1023.68 per year
- Without financing, comprehensive insurance cost: $968.85 per year
Other ways to reduce your car insurance premiums
While you might need comprehensive car insurance when you get a car loan, that doesn’t necessarily mean you need to pay hefty premiums. So, if you think you’re paying too much, here are some tips to reduce your bill:
- Drive less – as this reduces your chances of being in an accident
- Drive carefully – as a bad driving record causes your premiums to soar
- Park your car in a garage, carport or driveway – so you’re less of a target for thieves
- Install security devices like alarms and dashcams – these deter thieves
- Don’t claim for every scratch, ding or chip – because this will impact your renewal premium
- Set a higher excess – but only if you can afford it should the worst happen
- Choose any extras carefully – as optional add-ons to your coverage often equal higher premiums
- Insure your car for market value rather than agreed value – as it’s typically cheaper
- Maintain your car and get it serviced regularly – so it’s less likely to break down
- Don’t renew without comparing – shopping around can save you big time
While insurance can be expensive, it’s not your biggest cost. That honour generally goes to your car loan – particularly when you factor in interest. So, if you want to save money, your car loan is usually the best place to start.
How to lower your car loan repayments
Lowering your car loan repayments can reduce the strain on your monthly budget. So how can you cut costs?
- Look for ways to improve your credit score before applying for or refinancing your car loan
- Pay a bigger deposit to reduce the amount you have to borrow
- Consider adding a balloon payment to your loan – while this means you’ll pay more over the life of the loan, you’ll initially pay less per month
- Choose a longer loan term – which, again, will lower your monthly repayments but will mean you pay more overall
- Refinance onto a better deal – this doesn’t just lower your repayments but can save you money in interest charges