Insurance may cost you more than it should.
Getting a car loan on bad credit is just the start of expenses for your car. As we all know, once you get the car, you generally need to insure it. And if you’ve got bad credit, that might turn out to be more expensive than you thought.
Bad Credit? Bad Insurance
You might not be concerned about this because we’ve been told, constantly, that good driving is rewarded with good insurance prices. How often did your driver’s ed teacher talk about bad credit, compared to following distance? Unfortunately, your bad credit might be costing you more in insurance.
Consumer Reports recently ran a study looking at how customers with bad credit fared in terms of car insurance premiums, and the news was not good. Major insurers analyzed included State Farm, AIG, GEICO, Liberty Mutual, Allstate, Nationwide, and Progressive, and each of them charged more to drivers with bad credit compared to drivers with good credit.
The percentages are staggering. Two of the insurance companies, State Farm and AIG, charged more than 100% of what a driver with good credit would get to their customers with bad credit. Even the best companies in this regard, GEICO and Allstate, charged drivers with rough credit a third or so more than one with good credit could expect to pay.
Why Are Bad Credit Drivers Punished?
This may seem incredibly unfair, especially if you have a good driving record. And it’s certainly out of step with the attitudes of many other industries, including auto lenders, who are more often looking at the circumstances surrounding an applicant’s credit than just the score itself. But insurance companies insist they have statistics on their side when they charge drivers with bad credit more.
Essentially, there’s a correlation between bad credit and the likelihood of making a claim, or so insurers insist. But it seems somewhat at odds with the reality of the situation, not least because, as Consumer Reports notes, there’s no consistent model of scoring for or accounting for bad credit when applying for auto insurance. Some use Fair Isaac’s method, some use an internal method, some use a combination of the two; there’s no industry standard, and there certainly isn’t a consistent application of these principles across the board, as is obvious from the wild swings in costs between insurers.
Indeed, the only consistent factor is that drivers with bad credit are going to pay more, no matter where they go.
Sometimes good credit is key to good insurance.
What Can Drivers With Bad Credit Do?
The most effective method for showing insurance companies their policies are wrong is to vote with your wallet; shop around for the lowest-priced auto insurance and let them know that’s a factor. The good news is that you won’t have to worry about this in California, Massachusetts, or Hawaii; those states have banned the practice, and other bans might be coming from other states as outrage over the practice spreads.
Until then, though, just remember that as a driver with bad credit, you may not be getting the best premium possible. So shop around, and drive a hard bargain.
Photo credits: hyena reality of freedigitalphotos.net, artemisphoto of freedigitalphotos.net