Consumer Car Buying Advice Blog

35 states now allow some type of PAYD insurance that can save all drivers including bad credit car loan customers hundreds of dollars a year in insurance premiums.

Goin’ back to Cali

Here at Auto Credit Express, we see that California Insurance Commissioner Poizner recently announced a set of revised regulations that will allow companies licensed in the state to sell automobile insurance by the mile.

In doing so, the Golden State joins 34 other states in offering drivers the opportunity to receive a discount on their current insurance based on the number of miles they drive.

What is PAYD?

Pay as you go car insurance is a calculation that, on top of the usual pricing factors, links your insurance premium to how far you drive your vehicle. By giving low mileage drivers a discount over what they would normally pay, it takes into account the lower risks these drivers pose for accident involvement. When you think about it, the pay-as-you-go model really does make sense. Making one driver who travels 6,000 miles per year pay the same premium as someone (in the same risk class) who drives 24,000 miles a year is not only unfair, its entirely illogical.

But wait, there’s more

According to the Environmental Defense Fund, a recent Brooking Institution report shows that PAYD insurance also has ecological benefits, to wit:

•    Driving would decline by 8 percent nationwide, translating into a savings of about $50 billion to $60 billion a year in driving accidents and other car-related damage.
•    Total U.S. carbon dioxide emissions would go down by 2 percent and oil consumption by about 4 percent, helping to stabilize our climate and reducing America’s dependence on foreign oil.
•    Two out of three households would pay less for auto insurance, with each of those households saving an average of $270 per car.

Depending upon the company, PAYD insurance can be computed in a number of ways including (along with other factors involved in driver rating) specific ranges of miles, on a per mile basis, and by the number of hours as well as miles driven.

Premiums for these kinds of policies can include options for shorter policy periods (as in a 1 month versus 6 month policy) and premiums based on mileage only (you pay for 8,000 miles and when you reach that plateau you renew the policy).

Mileage enforcement and monitoring can be accomplished with on-board computers (such as GM’s OnStar), GPS meters and certified odometer readings.

Implications for bad credit car loan customers

At Auto Credit Express, we see PAYD insurance as a boon to low-mileage drivers – especially those owners who have financed their vehicles with subprime car loans that have inherently high interest rates. Pay-As-You-Drive insurance will allow these drivers to save money every month – money that can then be applied to a simple interest subprime car loan to pay off the debt even more quickly and cut down on the total interest expense.

What is our advice? Check with your insurance agent to see if the state in which you live is one of the 35 that allow the sale of some type of PAYD car insurance. If you do, ask if you might qualify and, if so what your savings would be. Chances are if you do qualify, you might very easily find yourself “on the road” to better credit even more quickly.

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