Car insurance for financed cars: what you need to know

Car insurance for financed cars can be different from standard car insurance. Find out how and discover 9 tips to save on insurance costs.



You've signed on the dotted line for your car finance. You've got the keys to your new car. But you can't drive off into the sunset just yet. You need to sort out your insurance first.

Simple enough, right? Yes, but there are differences between car insurance for financed cars and car insurance for cars you own outright.

In this guide, we'll walk you through them and share nine handy tips to help you get cheaper car insurance.

Car insurance for financed cars vs cars owned outright

No two car insurance policies are exactly the same. There will be differences depending on the provider you choose.

Generally speaking, however, there's one big difference between car insurance for financed and non-financed cars, no matter the provider: the type of coverage you need.

If you buy a car on finance, you'll almost certainly need fully comprehensive insurance.

Why financed cars need fully comprehensive insurance

Did you know you need fully comprehensive car insurance for financed cars?

It's true. Almost all car finance agreements require that you take out fully comprehensive insurance for the duration of the finance term.

That's because the lender is still the legal owner while you make finance payments. Understandably, they want to protect their asset.

If you didn't know, don't worry. It takes many people by surprise. However, it's very important to take out the correct insurance policy required by your finance agreement.

Failing to do so might put you in breach of your contract. That can leave you vulnerable to hefty out-of-pocket repair costs. It could even leave you paying off a loan for a car you're no longer legally allowed to drive.

If you own your car outright, you can choose less comprehensive coverage, such as third-party, fire and theft.

What is fully comprehensive insurance?

Fully comprehensive car insurance covers accidental damage to your car if you have an accident, even if it's your own fault.

For example, if you skidded on some ice into a bollard driving home from work, your insurance provider would generally cover the repair cost.

The other main type of car insurance is called "third party, fire and theft". As the name suggests, that only covers:

• The cost of repairs to the other person's car if you're both involved in an accident
• The full cost of the car if it's damaged by an accidental fire
• The full cost of the car if it's stolen
  
  

Fully comprehensive car insurance covers all of the scenarios above, as well as accidental damage (such as our bollard example).

Another type of insurance: guaranteed asset protection

Guaranteed asset protection (GAP) insurance is an optional extra that can help protect you financially if your car is stolen and not recovered, or written off.

Here's why it can be particularly useful if you have a car on finance.

Standard comprehensive car insurance generally pays out your car's current market value, not necessarily what you originally paid or what you still owe on finance.

For example, imagine your car is written off. Your insurer values it at £15,000, but you still owe £18,000 on your finance agreement. That leaves a £3,000 shortfall that you'd normally have to pay yourself.

With a suitable finance GAP insurance policy, that £3,000 shortfall could be covered, subject to the policy's terms and limits.

If you own your car outright, there's no outstanding finance to worry about. You'd simply receive the £15,000 insurance payout, even if you originally paid more for the car.

However, GAP insurance isn't just for financed cars. Other types of GAP cover can help bridge the difference between your insurer's payout and the original purchase price or the cost of a replacement vehicle. These can be useful whether you bought your car outright or on finance.

Nine tips for cheaper car insurance on your financed car

1. Don't leave it until the last minute

If you're buying car insurance on the day you want your policy to start, you'll pay top dollar for the privilege.

The sweet spot is usually around 25 days in advance. This can be tricky to time if you're getting a new car. However, it's totally doable if you don't need to drive the car right away or if you're renewing your policy. Put an annual reminder in your calendar.

2. Turn off auto-renew

It usually pays to shop around, and it's never been easier now we have comparison sites like GoCompare and MoneySuperMarket.

3. Haggle

Make sure you tell your current insurer about cheaper competitor prices. Often, they'll give you a discount because they want to keep you as a customer.

4. Pay annually

It's best to pay annually,  rather than monthly, if you can afford it. You can sometimes save 20% to 25%.

5. Raise your voluntary excess

This can help bring down your payments. But be sensible about it and always make sure you can afford the excess if you need to claim.

6. Change your job title

We don't mean "pretend you do a different job". You can do this legitimately by choosing a similar job title that still describes what you actually do.

Why would you want to? Well, your job title affects your insurance cost calculation, and some titles tend to have lower costs associated with them than others.

7. Add another named driver

Adding an experienced, responsible named driver to your policy can lower your perceived risk, especially if you're young or have recently passed your test.

8. Share your exact annual mileage

If you guess, you're more likely to overestimate. Check your MOT history for the correct figure.

9. Consider choosing a black box policy

Black box policies are so-called because they involve fitting a small device to your car that tracks your driving habits.

If you know you're a safe driver, choosing a black box policy might help prove it and could lead to lower insurance costs in future.

Car finance in Newcastle from Zoomo

Have you spotted a car you'd like but have been struggling to get car finance in Newcastle? We can help.

At Zoomo, 96% of people who apply for car finance get approved. That's because we work with a panel of specialist lenders who look at what you can actually afford – not just your credit history.

Why not apply for car finance today? Thanks to our soft-search technology, it won't affect your credit score at this stage.