Does Refinancing Affect Insurance Rates?

When thinking about refinancing your auto loan there are many things to take into consideration such as: how it will affect your monthly payments, whether it will affect your credit score, and if you will benefit from the savings. But, what about your insurance premium? While there is no direct correlation between auto loan refinance and insurance premiums, there are some situations it just may change.

For example, often times when you refinance your car loan to lower your monthly payment, but you have bad credit you are required to extend the loan term. This means you are now upside down on the loan and you may be required to purchase GAP insurance. It also depends on the refinance company, as sometimes they require you have more than the state minimum insurance coverage.

What is GAP Insurance?

GAP insurance provides you protection when you owe more than what the car is worth. So let's say you only owed $15,000 on a car you purchased a few years ago, but to lower your monthly payment you refinanced and extended you loan term and you now owe $20,000. The car is valued at $17,000 and you happen to total it in an accident.

Without GAP insurance your insurance company would pay you the $17,000 that the car is worth, but you would have to come up with the other $3,000 to pay the loan off. While this may not seem like a lot in a lot of cases the numbers tend to be higher.

When you purchase GAP insurance you have the assurance that should you get into an accident and total the vehicle, the whole loan amount would be covered.

Refinance Company's Requirements

When refinancing your auto loan the company wants to know that they will be covered when you drive the car off their parking lot which is why they may require that you carry a higher than normal insurance coverage.

For example with your current loan you may have been able to drop comprehensive coverage after you paid a certain portion of it, but with your refi loan you may need to re-purchase the comprehensive coverage.

The same is true when switching from lender to lender. Knowing exactly what you need to have for the specific lender in your situation will help you determine whether or not auto loan refinancing makes sense for you.

If you decide to move forward with the loan refinancing you can fill out our quick and simple online application today. You will be contacted by a financial specialist that will be there to walk you through each step of the process, and you could be on your ways to savings in a few days.