One of the mistakes you can make when you purchase a new car – especially with a bad credit auto loan – is to underestimate the cost of insurance.

Full Coverage vs. Partial Coverage (what you may have now)

If you are currently driving an older car, what car guys call a “beater”; chances are you have what is known as partial coverage – often called “PLPD” insurance. PLPD stands for “public liability and property damage”. This basic insurance covers the damage your vehicle would cause if you were involved in an accident. It also satisfies the minimum amount of coverage required by your state. It does not cover any damage to the vehicle itself.

Full coverage auto insurance (an insurance policy that also contains comprehensive and collision coverage), on the other hand, covers just what the name implies - not only the damage your vehicle would cause in an accident, but also the damage to the vehicle, itself. To make full coverage insurance more affordable, it is available with differing levels of deductibility. The “deductible” is the amount that you as the insurer would contribute to the repair bill. As an example, if you were in an accident and it caused $2000 in damage to your vehicle and you had a $500 deductible collision policy, you would contribute $500 towards the damage, while the insurance company would pay the balance of $1500. If the damage was under $500, you would pay the entire amount. The higher the deductible (the more you would contribute), the lower your insurance premium will be.

Which one should you get?

If you are driving an older car (one that is paid off), partial coverage insurance often makes sense. If the car is only worth a couple of thousand dollars, the money that you save could easily equal the value of the car in a couple of years.

Full coverage insurance, although more expensive, gives you peace of mind, since, even in the worst accident (other than a total loss), you would only be responsible for the deductible amount to repair your car.

Why is this important if I'm buying a car?

If you finance a car, the bank will require you to carry comprehensive and collision coverage. Since the bank loaned you the money for the car, they want to make sure it is repaired in an accident or, if the vehicle is a total loss, they get back the money that is owed them.

The Bottom Line

If the car you're currently driving has partial coverage, the difference in cost could be $100 or more a month. At Auto Credit Express, we are aware of the difficulties many new car buyers have in understanding the total cost of ownership of a new vehicle – especially for bad credit car loan customers. So if you are planning on buying a new car, be sure to check the insurance rates before you sign on the dotted line. Make sure to include the added cost of insurance in your budget.