When it comes to the question of whether the way you purchase your car affects your insurance, the short answer is that it doesn’t—at least, not directly. However, the way you buy your car, and the circumstances under which you do so, can tie your hands in one way or another, and we’re going to lay out how.
Many forms of financing will mean that you don’t own your car initially, as with hire purchase or personal contract hire, where the car becomes yours once you have paid off its full value to the finance company. Still others, like leasing, operate under the assumption that you will never own the car. In any case, whenever you’re in a situation where the legal owner of your car is one of these companies, that company will want to be listed as the loss payee and your insurer will want to be told that they are the legal owner.
This won’t change your insurance premiums, but there is one other demand that finance companies will make that could. When and if they reclaim the vehicle, they will want it to be in good working order, so they will require you to take out fully comprehensive insurance so that they have a guarantee that the car will be repaired to the manufacturer’s standards if it is ever involved in an accident. So a financed car isn’t more expensive to insure, but it does mean you don’t have the option of cheaper, third-party only insurance. Since most people would want their car repaired after any accident, this isn’t a huge sacrifice, but it’s worth bearing in mind.
The News About the New and the Use of the Used
Leased cars and cars bought on finance will also typically be new cars, and these are often on the more expensive end to insure, though make and model are important factors as well.
Used cars aren’t cheaper to insure than new ones by definition, but an older car will always be less costly to cover than a more recent equivalent, because of its overall depreciation in value.
This is an advantage but it also means that it will be easier to write off the car—when it comes to total losses all that matters is that the cost of repairs is greater than the value of the car—and this is something to take into consideration.
Once again this means that cars bought on finance may well be more expensive to insure than others, but this is never directly because they have been bought on finance.