How does car financing affect your car insurance in India


26 Jul 2023

Learn how car financing can affect your car insurance premium in India. Opting for comprehensive insurance & timely renewal becomes crucial. Read now!

Car financing can turn out to be an appealing option for people who are looking to purchase a vehicle but aren’t comfortable paying the whole amount upfront. With car financing, it is possible to spread out the cost of a car over a long period of time and make it more affordable. However, as car insurance in India is mandatory, it is essential to understand how car financing can affect your car insurance coverage and its premium.

How does car financing affect your car insurance in India?

When you get your car financed, till the time you pay off your loan, the car technically belongs to the loan provider. Therefore, the safety of the car is a concern for them.

1. You may have to opt for a comprehensive insurance:
While the third party is the mandatory car insurance in India, it does not cover your own damage. Therefore the lender, in order to cover the losses in case of an accident, may require you to opt for a comprehensive car insurance policy. As compared to third-party liability insurance, comprehensive insurance would cost you more. This is simply because of the extra coverage that you would be getting.

While comprehensive insurance is undoubtedly more expensive than third-party insurance, it also offers you better coverage. In case you do not go for car financing, you have the choice of opting for a third-party car insurance policy, but it is highly recommended that you opt for a comprehensive policy, else you would have to bear the repair costs in case of an accident.

2. Longer coverage:
When you look for car insurance online, you will come across that some companies offer a short-term insurance for some cars; however, when you opt for car financing, you need to opt for coverage that is valid for the full year. Even if you do not plan to use the car for some months together, even then, you would have to opt for the whole year.

3. Your financier becomes the payee:
The car loan lender pays a big amount when you buy a car. Thus, they assume the position of the additional insured or the payee. In case of damage to the insured car, the benefits would go to the lender company.

4. Renewal is all the more crucial:
While renewing your policy on time is always important, when your car is financed, a timely renewal becomes all the more essential. As the lender is your additional insured, a delay in policy renewal brings a bad reputation.

5. New and/ or late-model cars attract a higher premium:
Luxurious cars that are advanced or costlier would incur a higher car insurance premium. The repairs are costlier, and so are the spare parts.


There is no denying that car financing makes owning a car easy and accessible to people with varying financial circumstances. However, you need to bear in mind that this can sometimes affect your car insurance premium.

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Team Kotak GIC

The content of this blog has been created and carefully reviewed by the esteemed team at Kotak General Insurance, with the sole purpose of providing valuable guidance and sharing insights on the importance of general insurance. Our objective is to assist users in making informed decisions when purchasing or renewing insurance policies for their cars, bikes, and health. Our expertly curated information aims to empower our readers with the knowledge they need to protect their valuable assets and financial interests.