When deciding whether to buy or lease your next car, it is essential to understand what insurance coverage may be required for either situation. While some coverages are expected by law or the lender, other types of insurance may be optional for a financed or leased car. Even though you don’t own a leased car, it is essential to carry your own insurance on the vehicle. To find out more about getting insurance for your leased or financed car, visit eAutoLease.com. You can find complete information regarding leasing and insurance and make the best decisions regarding the vehicle you want to drive.
If you own a vehicle, the law demands you to have auto insurance. Insurance is a kind of investment that protects you from paying out of pocket. Plus, if you cause damage or injuries to other people while driving, you will be responsible for these costs too. Accidents can happen even to the best of drivers. Having auto insurance means you will have financial help in case of an accident.
What Is The Difference Between Leasing And Financing A Car?
Knowing the difference between leasing and financing is important before you decide to move forward.
When you lease a car, you are renting it for a specific amount of time. As you don’t own this car, you have to return it when the lease ends. However, you also have the option to buy the car if you want. When leasing, you will be working with a leasing company, also known as a lessor.
On the other hand, when you finance a car, you are paying off a loan towards owning the car outright. It means when the loan is paid, the car is 100% yours, and the vehicle title will be solely in your name. If you choose to finance, you will work with a financing company or a lienholder.
Determining which option is better will depend on your needs and what you prefer.
Read more: Can You Trade In A Lease Car?
How Leasing And Financing Affect Your Insurance
Insurance companies fix your rates on specific criteria such as gender, age, address, driving history, coverage needs, etc.
Even though your details will determine the insurance rate, the leasing or financing company will be named on the insurance policy. In case of an accident, your insurance provider will first pay the amount owed to the financing or leasing company. If the car is worth more than the due amount, you will get the difference. Gap insurance will pay the costs if it is valued at less than the outstanding balance.
Does Leasing Or Financing A Car Affect How Much You Pay For Insurance?
It does not matter if you lease, finance, or own your vehicle because it does not affect the cost of your car insurance. Instead, your rate is determined by several factors, such as the vehicle make and model, how long you have been a licensed driver, the number of past claims, and traffic tickets.
If you are not sure about buying or leasing, it is best to check out more information to help with your decision.
Car Insurance Coverage Required by Law
Liability Coverage
Most states require drivers to carry at least minimum liability coverage. It helps to pay for expenses in case you cause an accident that results in injuries or damage to the other party.
Uninsured and Underinsured Motorist Coverage
You may be legally required to have this coverage on your car insurance policy depending on where you live. If you are hit by a driver who does not have car insurance, the uninsured motorist coverage can pay for the medical bills. This coverage works similarly if you are hit by an uninsured driver whose liability coverage limits are not sufficient to pay for your medical bills that result from an accident they cause.
In some states, having personal injury protection is necessary in addition to uninsured or underinsured motorist coverage.
Insurance Coverages Required by Your Leaseholder
The company that finances your leased car owns it. To protect its financial interest in the car, the finance company will require you to carry collision coverage and comprehensive coverage as part of your auto policy.
- Collision coverage – it helps to pay for car repair if you hit another vehicle or object, regardless of fault.
- Comprehensive coverage – it helps to pay for car repair if it is damaged by something other than a collision, such as theft, vandalism, or a flying object.
Insurance Coverage Included With a Car Lease
Many leasing companies automatically include gap coverage in your lease payments. This gap insurance helps to pay off the auto loan and the car you are leasing gets stolen or damaged. Check with your leasing company if they include loan or lease gap coverage as part of your contract. If not, you may be able to purchase coverage from your insurer as part of your car insurance policy.
Insurance of a Financed Car
When you buy a vehicle, you are still legally required to carry liability insurance. You may also need uninsured and underinsured motorist coverage or personal injury protection depending on where you live. Some other car insurance considerations focus on whether you are getting a loan for a car, buying it outright, or may even depend on the model year of the car you are buying.
Read more: Three Things to Know About a Short-Term Car Lease
How Do Car Loans Affect Insurance?
When you take out a loan for a vehicle, the lender may ask for comprehensive and collision coverage on your car insurance policy. You can adjust these coverages on your car insurance policy once you have paid off the car.
How Does Buying a Car Outright Affect Insurance?
If you purchase a vehicle without an auto loan or after paying off your auto loan, comprehensive and collision coverage are optional on your car insurance policy. It also depends if you can easily afford to pay for the repairs or replace your car by yourself in case of an accident.
How Buying a Brand New Car Affects Insurance?
You can go for additional coverage, particularly for a brand-new car, if you are the original owner of a vehicle. New car replacement coverage may help you buy a new vehicle of a similar make and model if your brand-new car is damaged.
Which One Is Better – Buying or Leasing?
Several factors help to determine which one would work better for you. The benefits of buying versus leasing depend on the following:
- The amount of your down payment
- The length of the financial agreement
- Depreciation of the vehicle
You can use the calculator provided on various leasing platforms to compare the estimated costs of a car loan versus a car lease.
Benefits of Leasing a Car
The top benefits of leasing a car include:
- Driving a new car after every few years as a lease contract usually lasts for two or three years
- Low maintenance costs as most leased vehicles are under warranty
- Lower down payments and low monthly payments
Benefits of Financing a Car
The top benefits of financing a car include:
- Ownership of the vehicle at the end of the loan period, assuming you made all the necessary payments
- No restrictions on miles drives as most leases have a limit on the number of miles you drive, such as 12,000 or 15,000 miles per year
- Freedom to customize the car as you want
Knowing the pros and cons of financing vs. leasing help you make a better decision and seek insurance that works best for you. If you do not understand what to do, visit eAutoLease.com for expert advice and market trends knowledge.
