A lot of drivers sing the praises of being able to lease a car of their choosing rather than spending thousands of dollars for one of their own. The prospect of getting a new car every two years, since that is how long leases often are, with low monthly payments seems like a steal to most. At the same time, the car is under a warranty of its own and guarantees less maintenance. On the other side of the same coin is financing a car with a loan that enables more mileage and fewer restrictions –and when payments are complete, you now fully own the car. Both of these cost-effective ways help get more drivers on the road who otherwise wouldn’t be able to get a car the standard way or those just looking to save. Of course, there are also the questions of car insurance for leased and financed cars.
When You Lease a Car
A lease is more or less a long-term rental vehicle that the driver pays a monthly fee to drive and take possession of it. The car remains registered in the leaser’s name as the driver is given around two years with it before they move on to another car. This is a great way for drivers to get an affordable variety of vehicles that suit their needs. When it comes to the car insurance side of things when leasing a car, the driver still has a responsibility to get the appropriate auto coverage. However, it’s the leasing company that determines how much car insurance the car should have. More often than not, leasers often require full car insurance in addition to the state minimum liability coverage. Because of this, car insurance for leased cars is more expensive, but only because you are buying more coverage. These auto coverages in specific will be covered in a later section.
When You Finance a Car
Financing a car is different from leasing one because, as opposed to paying for its usage, the payments are put towards ownership -think of it as a car on a payment plan. During the financing period, the driver makes monthly payments toward their financiers. They can do this through a lender as well. Much like leasing companies, car financers and lending companies may require full auto insurance on the vehicle until it is fully paid off. Additional insurance is required should a car you are financing be totaled, and you still have a remaining balance you owe towards it. It’s arguable that financed car insurance is more expensive and expansive than leased car insurance.
Insuring a Leased or Financed Car
Let’s first look at car insurance on a standard level. Drivers in the majority of states are required to carry standard liability car insurance. This is the case for all registered cars on the road, and leased or financed cars are no exception. Liability car insurance is what covers injuries to other drivers and damage to their cars that you cause. Being financially responsible for damages you caused in a car accident is required by nearly every state. In addition to this, leasing companies and financiers require more broad car insurance with the following auto coverages:
- Comprehensive coverage – This is one of two coverages that make up full car insurance. This is important coverage to have because it insures a car against damages that occur while it is parked and not in use. This includes weather and crime-related damages that we often aren’t present for. Leasers want to protect their assets with this, while financers don’t want to see a car damaged or stolen while it is still being paid off.
- Collision coverage – This is the other of the two coverages that make up full car insurance. Collision coverage comes into play in an at-fault accident and covers damage to your car, while your general liability covers those of the other driver(s). For reasons just mentioned, leasers and financiers will absolutely want drivers of their cars to carry this coverage.
- Uninsured motorist coverage – This convergence may also be required by your state; check with your DMV to be sure. Financiers and leasers prefer that drivers of their cars carry this coverage as well should they be hit by a driver who doesn’t have insurance or enough to fully cover their damages.
- GAP coverage – This is especially recommended for drivers that finance their cars. If the worst happens and your financed car is totaled or stolen while you still owe a considerable amount, you’ll be on the line for your remaining balance. Standard car insurance will not cover remaining finance payments, so you want to be sure that you are covered. Several financers require this coverage for good reason.
Leasing And Financing Cars Benefits
A good aspect of leasing and financing a car is that it doesn’t affect your car insurance premiums. Granted, you will have to pay more for more coverage, but the fact you are leasing or financing a car will not change your luck in finding affordable auto insurance. Choosing between leasing and financing depends on the amount of time you wish to be doing so. At any point when you stop saving money by leasing or financing, that is the time to purchase a car of your own.