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When you refinance your car, it doesn’t automatically raise your insurance premium. However, you may need to make some changes to your policy so you can follow your new lender’s insurance requirements.
Understanding those requirements can help you move through the auto loan refinancing process with confidence. Below, learn what refinance car insurance changes you may need to make once your new auto loan is finalized.
Most lenders’ auto refinancing requirements include proof of active auto insurance. You’ll need your insurance ID card or policy declarations page showing the dates of coverage so they know your car is protected.
After all, your car is collateral for the refinance loan. If you fail to make payments and default on the loan, the lender can take your car. Without insurance, there’s a risk that the car could be damaged and its value would be less than the full amount.
That’s why many lenders require you to carry collision and comprehensive insurance in addition to liability coverage — they pay for repairs or replacement if your car is accidentally damaged. Your lender may also need to be listed as a lienholder on the policy.
Understanding how auto refinancing works can help you prepare for any ripple effects on your car insurance. For instance, refinancing a loan doesn’t directly change your insurance rate. But if you need to change your policy to meet your new lender’s refinance car insurance requirements, your rate could go up. Most lenders will require “full coverage” car insurance — liability plus collision and comprehensive. Adding those could push your premium up.
Changing your deductible could increase your rates, too. Let’s say your current deductible is $1,000 or higher, but your new lender requires a deductible below $1,000. Lowering it to $500 or $250 could cause your rates to increase, because the insurer takes on more of the cost of the claim after an accident.
After you refinance your car, you’ll need to make sure your auto insurance policy is updated to reflect those changes. This is your responsibility to handle, not your lender’s. Here’s what to do once the refinance is finalized:
Your car insurance policy lists your lender as the lienholder (someone with a legal claim on the car until it’s paid off). After the refinance, you’ll need to change the lienholder to your new refinance lender.
Your new lender could have different insurance requirements from your old lender. Make sure that the coverage on your new policy — especially comprehensive and collision — meets your new lender’s standards and that your limits are high enough to protect you financially.
Your new lender may also cap your deductible at a certain level, like $1,000. They want to make sure you can afford the deductible to repair the vehicle if something happens to it. If your current deductible is higher than your new lender allows, you’ll need to change it. Changing deductibles can affect your rates, so be prepared.
GAP coverage protects you if your car is totaled and the insurance payout is less than the amount remaining on your loan. After a refinance, some people find themselves “underwater” on their loan, or owing more than the car is worth, especially if they needed to roll negative equity into the refinance. If you have GAP protection, then that difference could be waived if you were in an accident.
Your lender will require proof of insurance for your new loan. After you’ve made any necessary adjustments to your policy, you can send them a copy of your new declarations page showing the updated lienholder and coverage.
Refinancing your car is a natural opportunity to review your current insurance coverage. Before you lock in a better rate on your new car loan, look at your current auto insurance policy, including liability limits, comprehensive and collision deductibles, and GAP coverage. Note your monthly payment cost and consider requesting new quotes, which could help you save more money.
RefiJet makes the refinancing process simple and straightforward, so you can focus on your bigger financial picture. Learn how to refinance your auto loan with RefiJet.
Below are some of the most frequently asked questions about the impact of refinancing on your car insurance.
It won’t change your auto insurance premiums, but you may need to make some tweaks to your policy to meet your new lender’s auto refinance requirements.
Yes, you’ll typically need to update the lienholder on your auto policy to reflect the new lender. You might also need to adjust your coverage levels depending on the lender’s requirements.
It depends. Refinancing doesn’t change your insurance rates. However, if you need to make changes to your coverage, then that could affect the price of your insurance.
Refinancing is a good time to shop around to make sure you’re getting a good rate on car insurance. Sometimes all it takes to lower your insurance costs is switching to a different insurer.
Generally, yes, you’ll need to show proof of an active auto insurance policy if you want to refinance. Often, the lender will require you to carry full coverage (liability, collision, and comprehensive) until the car is paid off.
Learn whether you can refinance a car loan with high mileage, what lenders consider, and how vehicle age and mileage affect approval.
