Is Car Insurance Cheaper If You Own the Car?

In the first quarter of 2025, Americans owed $1.18 trillion in auto loans, according to the Federal Reserve. Borrowing to buy a car is common (as is leasing) because it can be too expensive to buy a car outright.

Still, there may come a day when owning your car outright becomes a reality. For me and likely many other drivers, being free of a monthly loan or lease payment is a welcome relief since now I have more breathing room in my budget. However, there are still car ownership costs, including maintenance, upkeep, and insurance.

When I finally paid off my first car decades ago, I wondered if my insurance rates would go down, since I was now the only person with a legal interest in the vehicle. While your premiums likely won't automatically drop, you can usually change your coverage options to save some money, but you should first weigh the benefits and risks.

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When I told my insurance company I had paid off my car loan and wanted to know if my rate would go down, the answer was a big disappointment. Sadly, the insurer told me my rates wouldn't change just because I owned my car instead of financing or leasing it.

Looking back now, this makes sense. Insurers price policies based on risk. If you're a dangerous driver with many past accidents or tickets, or you pick a car that thieves tend to steal, you'll pay more because these factors directly affect the likelihood of making a claim.

However, simply switching the car's status from financed or leased to owned doesn't reduce the risk to the insurance company if you keep the same coverage, but the keyword is if. Because once you own your car outright, you may want to change the coverage you have in place.

Owning gives you more coverage flexibility

When you finance or lease a car, your loan or leasing company may have strict rules for the kinds of insurance you must have. Since the lender or lessor has a legal interest in your car, it wants enough coverage to protect the asset.

Lenders and leasing companies require carrying at least your state's mandated coverages, such as liability and uninsured/underinsured motorist insurance, and often the following extras:

Collision insurance: This will pay for repairs or the replacement of the car if you're involved in a crash that's not the fault of another driver.
Comprehensive insurance: This pays for theft and other non-collision-related losses, such as if a tree falls on your vehicle or you hit a deer.
Guaranteed asset protection (GAP): While this is less often required, the coverage is important since it pays the difference between what the car is worth and the fair market value the insurer would pay if it were stolen or totaled. Otherwise, you could be left paying your remaining lease or loan balance out of your pocket.

Once you no longer have a lender or lessor, you don't necessarily have to keep these extra coverage types. If you get rid of them, your insurer won't provide as much protection, so the company's risk and your coverage cost will decline.

What else affects car insurance rates?

While ownership won't change your car insurance costs, there are plenty of other factors affecting insurance rates to know about. The following factors will always play a role in setting premium costs because they directly affect the risk of a claim being filed:

Demographics: Your age, gender, and marital status all impact your crash risk. For example, teen and senior drivers statistically have more collisions, as do unmarried people and men. As a result, these drivers usually pay more.
Location: Do you live in a safe area where vandalism and theft are unlikely? Your rates will be lower. The same is true if you keep your car in a garage.
Driving record and claims history: If you have black marks on your driving record, such as a speeding ticket or DUI, you're a higher-risk driver who will pay higher premiums. If you've made past claims, you're also more likely to make future ones, so your costs will rise.
Vehicle make and model: Cars have different safety features and theft risks. As a result, your car's make and model affect the cost of insurance coverage.
Vehicle use: The more you use the car, the greater the chances of a crash happening just due to sheer exposure to other cars on the roads. As a result, drivers who rarely use their vehicles may pay less than drivers who commute daily and rack up tons of miles.
Credit score (where allowed): Some states allow insurers to consider your credit history when setting auto insurance rates. Insurers may charge people with lower scores more, as statistics show that such people tend to make more accident claims.

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Should you drop coverage types for your owned vehicle?

If you want to save money on car insurance, dropping some coverage after paying off your vehicle is an option. Specifically, you may be able to drop your comprehensive, collision, and GAP insurance. However, just because you can drop them all doesn't mean you should.

Getting rid of GAP insurance is a no-brainer. You'll no longer need your insurer to pay the difference between your car loan or lease balance and the paid-off car's market value.

However, deciding whether to eliminate collision or comprehensive coverage requires much more thought. In fact, I decided to keep both of these coverages after paying off my car, even though I could have saved a good amount of money if I'd made a different choice.

Check out these key considerations that can help you decide:

Car's value and repair/replacement costs

Before dropping your collision or comprehensive coverage, consider what your car is worth. If something happens to your vehicle and you don't have coverage, how much money will you be out, and what would it cost to get a comparable car?

If your vehicle is worth $30,000, you probably don't want to get stuck eating a $30,000 loss if something happens to the car. You may not be able to afford to replace the vehicle without any help from insurance. Even if you could, it would likely still be a burden.

Of course, if your car is an old clunker and is worth $2,000, taking that financial hit may not be so bad — if you can afford to pay to replace it.

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Driver's record and accident history

If you think you're more likely to get into an accident, it can make sense to keep your collision coverage and transfer the risk of crash losses to the insurer.

But if you are a very safe driver, don't drive much, and believe a crash is very unlikely, it may not be worth paying extra money to the insurer to shift the cost burden of a potential future crash that has a low chance of happening.

Threats in the driver's location

How likely is it that someone will steal or vandalize your car, or that you'll hit a deer or have a tree fall on your vehicle? These are some of the things you'd get stuck paying for without collision and comprehensive coverage.

The greater the likelihood of something or someone in your environment damaging your valuable vehicle, the more sense it makes to keep full coverage car insurance.

Driver's financial situation/risk tolerance

When you pay premiums for collision and comprehensive coverage, you pay a predictable amount over time. For many people, this works out better than the looming threat of a potentially huge bill if something goes wrong. If that's the case for you, keep your coverage.

You also have to think about how risk-averse you are. Are you OK with taking on the risk of paying out of your pocket to repair or replace your car if you drop your coverage and something goes wrong? If this causes you stress, keep your full coverage in place.

Potential premium savings

Don't forget to think about how much you'll actually save if you drop coverage after paying off your car.

Say, for simplicity's sake, your car is worth $30,000, and you save $1,200 annually by canceling collision and comprehensive insurance. It would take 25 years of saving $1,200 to make up for the potential $30,000 you could get stuck paying if your uninsured car gets stolen or destroyed.

Since 25 years is a very long time during which something could go wrong, paying for coverage probably makes sense in this case. But what if your car was worth $2,500 and you saved $600 per year by dropping your coverages?

Within around 4.2 years, you would've saved enough to cover the $2,500. If you strongly believe no crash will happen in 4.2 years, you could put the premium savings into a special account earmarked for car replacement so you'd be ready if a crash did occur. Once you've saved enough to pay for the car's replacement, any extra savings are just more cash in your pocket.

What to do once you own your car outright

When you own your car outright, alert your insurer. This isn't to save on your coverage but rather to ensure you get the entire insurance check if something happens to the car. Otherwise, the insurer might send that money to the lienholder on record.

It's also a good idea to reassess your coverage needs because, as mentioned above, you can drop GAP insurance and may want to drop collision and comprehensive coverage as well. Of course, check your state's minimum requirements before dropping insurance coverage, so you don't face legal trouble.

Other ways to lower your car insurance rates

If you're disappointed that paying off your car won't reduce your auto insurance rates, try some of these other steps that might lower your premiums:

Shopping around with different companies: Different insurers charge different rates and offer different products, and the cheapest company and coverage can change over time, especially as you get older and undergo life changes. Get at least a few quotes to make sure you still have the best car insurance for you.
Reviewing discount programs: Many insurance companies offer opportunities to save for things like installing apps that track driving, taking a defensive driving course, or prompting your young drivers to earn good student discounts.
Bundling coverages through one insurer: Buying multiple policies from the same insurer can result in reduced rates on different coverages and is a simple way to save. For example, by bundling home and auto.
Considering pay-per-mile or telematics programs: Telematics programs allow insurers to install apps or plug-in devices to monitor your vehicle. If you behave safely behind the wheel, your rates may go down. If you make unsafe moves, like hard braking or distracted driving, your premiums may be higher.
Lowering coverage limits: Reducing coverage limits can help you lower premiums without dropping coverage entirely. For example, you might cap your collision coverage at $25,000, even though your car may be worth more.
Increasing deductibles: Increasing your deductible means you'll pay lower premiums but pay more out of pocket when you make a claim. That's because a deductible is the amount you're responsible for when a covered loss happens, before insurance kicks in. A higher deductible lowers premiums because the insurer doesn't risk losing as much.

FAQs

Should I have full coverage on my car if it's paid off?

If you won't be able to afford to cover out-of-pocket expenses to replace or repair your vehicle if something happens to it, you should keep full coverage auto insurance on your paid-off car.

If the car is worth a lot of money, it's also a good idea to keep coverage, even if you could pay for a replacement. It's usually worth paying a little bit more in premiums so you don't risk getting stuck paying tens of thousands of dollars if a crash or other issue arises.

Does owning a car affect insurance rates?

Compared to leasing or financing, owning your car outright doesn't change your insurance rates, because the ownership status doesn't directly affect the claim risk. You can drop some coverage once you own the car — but think carefully about whether you want to assume the financial risk.

Do I need to tell my insurer that I paid off my car?

You should alert your insurer that you've paid off your car. While you won't save money on auto insurance just for paying off your vehicle, you do want your insurer to remove the lienholder from the policy. That way, if something happens and you make a claim, the insurer will send the funds to you rather than potentially to your loan or lease provider.

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Bottom line

Although paying off your car won't automatically reduce your premiums, dropping GAP insurance is possible after you no longer have a loan or lease, and this could lower your costs.

While there are times when it makes sense to also drop other kinds of coverage once you no longer have a lender or lessor that requires them, consider the risks carefully, so you won't have any regrets.

I was glad I kept my full coverage policy, because when the windshield on my paid-off car was damaged, I had no problems getting the repairs. It was an important reminder that the point of insurance is to transfer risk, and the premiums provide you with valuable protections often worth paying for, especially if you shop around and compare quotes to find an affordable insurer.

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