Will Having A Loan Out On My Car Affect My Insurance Rate
Car insurance is a fixed portion of most household budgets. Most professionals that commute to work depend on at least one household vehicle if they live in a suburban area and probably commute about 20 to 15 miles round trip each day. With such constant travel, it is likely the car will have to be replaced eventually. Unfortunately, purchasing a new car, van or SUV can easily cost several months salary. Busy professionals that are the main breadwinners of the family do not always have the luxury of paying cash for a car. So, many families have turned to automobile financing to purchase new or gently used vehicles. According to the National Automobile Dealers Association, the average cost of a new car purchased in the United States is $28,400. In taking out a loan to finance the purchase, it may be several months or years before the loan is paid off in full. This financed cost then appears on the driver's credit report as a revolving debt account. But, will it have an affect on the driver's car insurance rate?
Car insurance quotes are calculated by asking specific questions that help convey driving patterns. The insurance company is looking for the frequency of driving, records of past bill payments, traffic violations and ways to discount the policy. Common discounts are available for being a member of certain organizations, taking college courses or being a member of the Military.
Along with this, car insurance companies check each applicant's credit score. Having a low credit rating will cause the price of the car insurance to rise. Extremely low credit scores with accounts that were never paid off are red flags for the car insurance companies. And, while insurance is regularly granted to consumers with extremely bad credit, a larger payment may be required to start the policy. Overall annual rates for insurance coverage will be higher than someone with a track record of paying bills on time.
Having a current car loan where the payments are being paid on time will only help when acquiring car insurance. Accounts on the credit report that are in good standing do not cause higher insurance rates. Credit scores play a large role in how much insurance costs. So, keeping current on auto loan payments will only help when applying for insurance, looking for employment and when opening new credit accounts.
A balance on one or more revolving credit accounts or car loans does not automatically disqualify anyone from receiving cheap car insurance rates. In fact, the actual car insurance rate received after filling out a car insurance quote may actually be lower than expected.