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The Insurance Impacts Of Auto Loans And Leases

Saturday, June 12, 2021

A man holds a pair of car keys.

When it comes to purchasing a new car and the subsequent car insurance, a central question is whether to lease or finance your new vehicle. Understanding the pros and cons of the two options will also help you clarify your auto insurance for a lease versus a purchase. If you are the type of person that prefers to drive a new car every few years, you will like the flexibility of leasing options. If you choose to buy a car and keep it for several years, financing a car will better suit your lifestyle. No matter your choice, you will need the appropriate car insurance

Pros and Cons Of Leasing

Leasing a car means you will never have full ownership of the vehicle. The leasing agency is the owner, but you will be responsible for the insurance. Your leasing company will have a vested interest in the condition of the car. Typically, your monthly payments will be lower for a lease, and there may be restrictions on yearly mileage over the life of the lease. Your leasing company will set the auto insurance requirements. Auto insurance for leased vehicles generally requires liability, collision, and the legal requirements of your state. 

Pros Of Leasing:

  • Lower monthly payment
  • New car every few years
  • No/ low maintenance costs

Cons Of Leasing:

  • Yearly mileage limits
  • Always have a monthly payment
  • Additional fees for wear and tear

Leasing may be your favorite option, but you will never outright own your car. You will need to work a car expense into your monthly budget for the foreseeable future. 

Pros And Cons Of Financing

If you are the type of person who likes to own a car for years, the obvious choice is to finance. Knowing your monthly payments have an end date and having unlimited mileage is probably more appealing to you. Your monthly payments might be higher than leasing because of the interest expense over the life of the loan, but they do come to an end. Your vehicle value will depreciate over the years, and you will be responsible for maintaining your car.

A woman buys a new car.

Pros Of Financing:

  • Unlimited yearly mileage 
  • Loan payments end
  • Freedom to customize your vehicle

Cons Of Financing:

  • Higher loan payment
  • Depreciation of value as car ages
  • Responsible for all upkeep and maintenance
  • Safety features will be outdated after a few years

Financing a loan for your new car will have some added costs but comes with fewer restrictions than leasing a vehicle. Car insurance for your financed vehicle may decrease once you finish paying the loan. 

Car Insurance Lease vs. Own

Is auto insurance higher on leased cars? Remember, the laws of your state and your leasing company set the rules for auto insurance requirements for the leased vehicle. You will need liability to cover damage you may cause to others in an accident. Most states require coverage for under and uninsured motorists. Your leasing company has a financial interest in the condition of your car, so expect to add collision insurance to be sure you can cover damage and repairs you may cause others. Additionally, most companies require comprehensive insurance to take care of any repairs from theft, vandalism, or falling objects. 

Financing a vehicle will require the same insurance coverage as the leasing details above. A new car will need all of the protection that a leased vehicle would require, but your costs could go down after you pay off your loan. However, if you choose to buy a used car, your insurance needs may be less costly from the beginning. As your car ages, the overall expense of insurance should decrease. 

The best way to find answers about car insurance leasing versus financing is to ask your Independent Insurance Associates agent. We are happy to help you explore the pros and cons of car insurance for lease and buying, and how those options fit your lifestyle. Feel free to contact us for help and advice when choosing the coverage for your next vehicle — we at Independent Insurance Associates are here to help you navigate any insurance questions and provide the best protection for you and your loved ones.