You may get an opportunity to lock in a better car loan interest rate. At other times, you may experience a change in your personal financial situation. These may signal that it is time to seek refinancing for your car loan. Refinancing should lower your car payment. This is caused by lower interest or by extending the length of the loan. Many people do not consider that refinancing their car loan might affect their car insurance rates, but it can.
Changing lenders could signal a rate adjustment to your insurer.
It really should not matter to the insurance company who finances the car or if it is refinanced. However, since some car insurers look at your credit history and credit score as a part of their rate formula, the company may decide to review your rates when you request a change in the finance company. The insurer could view refinancing as a significant change in your financial outlook and raise your rates.
Sometimes the car insurance premium is included in the amount of the car payment.
In these cases, the lender buys the insurance policy and bills it to the borrower. This lets the bank be certain that the car has adequate insurance coverage. At the same time, it assures that bank that the insurance is kept in force for the duration of the loan. Refinancing with the same lender should not affect this type of policy. However, changing lenders will all but guarantee a change in your car insurance rates because the insurer will change.
Refinancing may not have any immediate affect on your car insurance costs.
Staying with the same bank should mean that the car insurance company will not be notified about the refinancing. Until your current insurance policy is due for renewal, the insurer will have no good reason to check your credit and discover the refinancing. As long as you are not changing car insurance companies right away, your premiums should stay the same.
The real potential hit for most car owners who refinance their vehicle will come when it is time to renew the policy or change insurance companies.
Most car insurance policies are set to run for a one-year term. At that point, if you do not act, the policy is automatically renewed after a company review. If you are ticket- and accident-free, most drivers will see similar rates continue. When this renewal happens after a refinancing, you might see a bigger than usual leap in your premium amount. It will really depend on how the refinance reasons figured into your credit picture.
If you refinanced to get a better interest rate for a loan with several years to go, this will look favorable.
However, if your refinancing was the result of money and credit problems, it will almost certainly have a negative impact on your rates. If this happens, it will be a flag for you to spend some time shopping for better insurance rates before agreeing to the price hikes from your current company.