Will a Repo Harm My Auto Insurance Rates?
Anyone who has gone through the nightmare of their car disappearing from its parking spot–and realizing it wasn’t stolen, but repossessed–likely knows the incredibly devastating financial ramifications in store. Outstanding debt that leads to having your property repossessed not only kills your credit, but once it’s been taken, you either have to try and buy the property back or lose all the money you put into it.
However, what about insurance rates? When it comes to cars, will having yours repo’d lead to skyrocketing auto insurance rates, too?
How Auto Repossession Happens
Most people take out a loan to finance a new car purchase since coming up with the full price on the spot is not a realistic option for most. However, if you finance your car, you owe money to a lender and sign a contract agreeing to pay them back and the car serves as the collateral. If you then consistently fail to make your payments on time, the lender will simply take back the car (or send a debt collection company to get it).
A Car Repo’s Effect on Insurance
While having your car repossessed doesn’t have a direct effect on future insurance rates, the occurrence will still have a major impact on the rates you’re offered down the line when you actually own a car again.
That’s because, as mentioned, having property repossessed significantly decreases your credit rating. Why does that matter? Insurance companies often evaluate your credit when calculating your premium, in addition to other factors like your driving record, age and vehicle make and model.
Why Insurers Care About Your Credit
Your credit report is like your financial report card. It tells creditors and other interested parties how reliable you are when it comes to borrowing money. Do you have a lot of debt? Do you pay your bills on time? Your credit history will answer these questions and more.
Now your auto insurance company isn’t really concerned with how likely you are to pay your insurance premium on time. After all, charging you more money for having poor credit would not encourage timely premium payments. Rather, they are judging the likelihood of you getting in an accident and filing a claim.
Drivers with good credit are statistically proven to be safer drivers. Your insurer will view your good credit as an indication you’ll cost the company less in claim payouts (or your bad credit as a sign you’ll be an expensive customer). Even if you have an excellent driving record, bad credit could make your auto insurance much more expensive.
This means that one of the most important steps in buying a new car, in addition to getting quality auto insurance, is budgeting for the big purchase before you hit the car lot. You must be sure of your price range and your ability to make the monthly payments, otherwise you will face nasty consequences that extend beyond just your credit report.