There’s nothing more exciting than buying a car.  Whether it’s your first car, a second car, or a car purchased later in life, there’s nothing like the thrill of picking out, test driving, and then driving your car off the lot.  Because cars cost a hefty sum — up front and down the line — paying for it all at once with cash, or even most of it, may not be an option for you, which is not unlike many drivers.  This is where financing comes into play, or the taking out of a car loan.  A car loan allows you to take home a vehicle: you commit to regularly scheduled monthly payments for a fixed term, and it often requires a down payment.  Car loans give you the means to afford a car.  It is a binding agreement between you and an entity known as the lienholder. This might have you asking yourself “what is the lienholder”?

What is a Lienholder?

A lienholder is the institution or party who is financing and therefore has a legal financial interest in the vehicle.  Also known as the lender, lienholders and/or private parties provide the funds by letting you borrow money for the purchase of your vehicle through the car loan process.  Once the car loan is created, a lien or legal claim, is created to safeguard the lender and provides it the full right of possession until the loan is paid off.  In the event you default on your loan, the lienholder is within their rights to repossess it.  However, if you stay in good standing, when the car is paid off, the lien is released.  In addition, the vehicle title switches hands and goes from the lender to you, the purchaser of the vehicle.

There are three types of lienholders, and they consist of either a bank, another type of financial institution, or a private individual.  So, in addition to financial institutions, private individuals, or people, can be lienholders on a vehicle that you have purchased.

 What Should the Length of My Car Loan Be?

 Car loan lengths come in increments of 12 months, and the most common terms are 24, 36, 48, and 60-months and longer.  Your term length, along with the purchase amount and interest, will determine your monthly car payment.  Long-term loans like 60 or 72-months can make your payments lower, but you pay more over the term in interest.  Short-term loans are generally advisable for this reason.

Unfortunately, inflation due to vehicle shortages has raised prices of both new and used vehicles to record-level highs. This has resulted in longer loan terms for many borrowers. Though the average loan term for new cars has increased over the past decade, according to Edmunds, the most common term now is an astonishing 72 months.  However, the online automotive resource recommends a 60-month auto loan, if possible, citing higher interest, car fatigue, negative equity and low resale value.

Options if financing is too expensive

If you find that financing a vehicle is too expensive for you, another option to consider is leasing.  Leasing a vehicle allows you to get a vehicle — and in most cases —a higher-end or higher-cost vehicle, with low monthly payments.  Regular maintenance is typically covered by the lessor of the vehicle, not you, and there are a series of restrictions, such as caps on mileage, that you must adhere to.  Leasing, in effect, is like renting a vehicle.  Unlike financing, where you become the sole owner of the vehicle once the lien is paid in full, you won’t own the vehicle outright at the end of your term — you can either return it to the lessor or possibly purchase it under a financing agreement.

Does Having a Lienholder Affect My Car Insurance?

Lienholders want to protect their investment, and as such will require that you carry what is referred to as “full coverage” on your vehicle.  The option of liability only insurance coverage won’t be enough for a financed vehicle, and limits around bodily injury and property damage will likely need to be increased.  A lienholder’s insurance requirements for coverage options often include:

 ·       Liability coverage (bodily injury and property damage liability coverage)

·       Comprehensive coverage and collision coverage

·       Uninsured and/or underinsured motorist coverage

·       Any state-specific coverage requirements

·       Other coverage, such as loan/lease insurance or GAP insurance

Once you’ve paid off your car loan, you then have the choice to remove, or keep, comprehensive and collision coverage.  Loan or lease insurance or GAP coverage will no longer be needed.

Tips to Save on Your Insurance for a Financed Car

Monthly car payments and insurance premiums for a newly purchased car can really add up. Routine maintenance will also be a cost.  Here are some ways to help you save on insurance:

Shop around.

Your insurance carrier may not have the lowest rates.  It’s important to shop around when you purchase a new vehicle to get the best rate possible.  It’s also helpful to compare rates with other carriers at six-month intervals.

Bundling policies.

Take advantage of any bundling policies your insurer offers with homeowners, renters or any other type of insurance.  The savings could be significant.

Pay your auto insurance policy up front.

Instead of monthly payments, consider paying your insurance up front and avoid any associated monthly fees.  An estimated $85 a year could be saved by paying your premium up front.

Consider telematics.

If you are a reliable, safe driver and use your vehicle infrequently, consider a usage-based insurance option to save money.  Telematics-based insurance makes use of technology in the form of in-car devices and mobile apps to track your driving patterns to determine your premium.

Inquire on available discounts.

Check with your insurer to make sure you are getting discounts that may apply to your situation, like multi-car, work from home, student discounts or any other type of discounts.

Drive safe.

Being a safe, attentive driver allows you to avoid accidents, distracted driving and speeding violations, all of which could cause your rates to increase.  One of the best ways to save on insurance for a financed car is to be a responsible driver.

Getting the best insurance rate for your newly financed car, along with the right coverage to meet your lienholder requirements is important. So, don’t wait.  See how Elephant can help you.  Get a quote or add comprehensive and collision coverage today!

Article last updated on June 25th, 2023 at 6:44 pm

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