When buying a new car, you have two main options: leasing or buying. If you’re trying to decide between leasing or buying a vehicle, then you need to compare all of the pros and cons – including which option comes with cheaper insurance prices.
Is it cheaper to insure a leased car? Or is it the same as insuring an ordinary car that you have financed or purchased outright? Today, we’re explaining everything you need to know about the difference in car insurance on leased vehicles and purchased vehicles.
There is No Impact on Car Insurance Whether Your Car is Purchased or Leased
If you’re comparing auto insurance prices for the same vehicle, then it doesn’t matter whether you’re buying or leasing the vehicle. The car is the same and the value of the car is the same. Generally, you’ll pay the exact same insurance prices.
This is particularly true if you’re financing a vehicle or leasing a vehicle. Whether you’re financing or leasing a vehicle, you don’t technically own the vehicle outright. The financing company, leasing company, or dealership partially owns your vehicle. Your vehicle is the collateral that secures the loan. Because the vehicle is the collateral, the lender wants to protect that collateral. That’s why the lender will often require you to get full coverage auto insurance – not just basic liability insurance – on the vehicle.
Car Insurance May Be Cheaper If You Buy the Vehicle Outright
If you’re buying a new vehicle with cash and you own the vehicle outright, then you have different insurance options than if you were to finance or lease a vehicle.
When you own a vehicle outright, you can choose how you want to insure that vehicle. You can choose to add basic liability insurance with the lowest minimum coverage limits. Basic liability insurance is all you are required to hold to legally drive on the road.
Most people will buy full coverage car insurance for a brand new vehicle. If you just purchased a vehicle for cash, then you likely want to protect that investment. If you just have basic liability insurance, then your car will not be protected against collision damage or other unexpected situations. That means if you get into an accident on the way home from the dealership and your car is totaled, then you might be forced to pay for car repairs – or a totally new car replacement – out of pocket.
If You Lease or Finance a Vehicle, You Need Full Coverage Car Insurance
Full coverage car insurance provides maximum protection for your vehicle against all types of unexpected circumstances. Full coverage car insurance, understandably, is also the most expensive type of car insurance.
When you lease or finance a vehicle, the lender will require you to purchase full coverage auto insurance as part of your loan agreement.
Once you have fully paid off your vehicle or the lease is complete, you can choose your own insurance plan. Whenever you are leasing or financing your vehicle and the vehicle is being used as collateral, however, you will typically need full coverage car insurance.
Some Leased Vehicles Come with Insurance
Generally, you’ll pay the same insurance prices whether you’re leasing or financing a vehicle. However, some leased vehicles have their own insurance.
Many leasing companies automatically include gap coverage in your lease payments.
Gap coverage is a unique type of insurance policy that will help pay off your auto loan if you’re “underwater” on the loan.
You might be considered underwater on the loan if your vehicle is totaled and you receive a check from the insurance company for less than you owe on the car loan. If the car is totaled and the insurance company writes you a check for $20,000, for example, but you owe $30,000 to the lender, then gap insurance can help cover the difference.
Used Cars Are Generally the Cheapest to Insure
If you’re comparing full coverage insurance prices on new cars, leased cars, and financed cars, then you’ll see similar prices for all three.
If you really want to save money on insurance, however, then you’ll want to get a used car. A used car generally comes with lower insurance premiums than a new car – especially when buying full coverage. Used cars are less valuable, which means lower risk for the insurance company.
There’s no difference between car insurance prices when you lease or buy a vehicle. Generally, the lender will require any leased or financed vehicle to have full coverage car insurance. Even if you buy the vehicle outright, it’s generally in your best interest to buy full coverage car insurance to protect your investment.
Ultimately, there are limited differences in insurance prices whether you’re buying, leasing, or financing a vehicle unless you’re only buying basic liability insurance – something you can’t do if you lease or finance a vehicle and something you shouldn’t do if you’re driving a brand new vehicle.