What to Do If You Can’t Afford Car Insurance

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young woman on the phone in her car because she can't afford car insurance
Your car isn’t just a hunk of metal sitting in your driveway. Most Americans rely on their cars to get to work--especially the millions that live in transit deserts, or areas without adequate public transit. But owning a car costs money even after the initial purchase, and those costs are rising. In 2020 the average cost of owning a new car was $9,561 per year, according to AAA. That includes expenses such as depreciation, fuel, and car insurance. While you may have planned for the cost when you bought or leased your vehicle, unexpected expenses can creep up at any time. Whether that’s the cost of a car repair or something unrelated, a surprise expense can limit your ability to handle everyday bills like car insurance, especially for Americans who don’t have enough cash stashed away in an emergency fund. If you’ve found yourself unable to afford your car insurance payment this month, don’t panic. There are steps you can take to stay legally and financially protected on the road.

How Much Does Car Insurance Cost?

The average cost of car insurance was $1,056.55 annually in 2018, but the figure varies by state. For example, Louisiana residents paid $1,545.82 on average, while North Dakota residents paid an average of $686.08, according to the Insurance Information Institute. Costs also depend on several other individual factors, some of which are not in your control.

How to Make Room for Car Insurance in Your Budget

If your income or expenses have changed, you may need to reevaluate your budget to make room for your car insurance bill. You might seek ways to save money on essentials or cut out unnecessary costs like alcohol, coffee, entertainment, and dining out. Add up all your sources of income to see where you stand, and then subtract recurring bills, including your car insurance bill. If what’s leftover won’t cover your necessities, you should consider securing an additional source of income, such as a second job or side hustle. You can also take steps to reduce your monthly premium.

How to Save Money on Car Insurance

Compare Quotes

There is no single cheapest car insurance carrier for everyone — But some car insurance companies will be able to offer you better rates than others. The best way to identify if you could be saving money with another company is by comparing customized quotes. You can use an insurance comparison tool or get quotes from various insurance company websites. It’s okay to cancel your current car insurance policy if you find a better deal elsewhere, but you must make sure you have the new policy in place first to avoid a lapse.

Raise Your Deductible

Your deductible is your share of the financial responsibility of an insurance claim. The balance will be paid by the insurer. A higher deductible corresponds to lower insurance rates, and vice versa. But while you can save on your premium by raising your deductible, you should also be financially prepared to file a claim. Choose a deductible amount that you can cover with your emergency savings. Otherwise, you may need to go into debt to get back on the road after an incident.

Forgo Optional Coverage

If you have an auto loan or a lease, you’re required to carry full coverage car insurance. But you can drop extras like roadside assistance and rental reimbursement coverage if your insurance bill is too high. If you own your car outright, you can also drop your comprehensive and collision coverage. This can sometimes cut your insurance bill in half, but you should know that you’ll be on the hook for any damages to your vehicle in an accident you cause. If you don’t have savings and you rely on your car to get to work, it’s generally not a good idea to cancel your comprehensive and collision coverage.

Ask About Discounts

While some discounts may be automatically included in your policy, you may need to ask your insurance agent about others. For example, your insurer might offer discounts for safe driving or low mileage, which would require you to download an app on your phone or install a telematics device. Or you may be able to save money on car insurance if you take a defensive driving course. Ask your current insurance company if you’re eligible for any discounts before you switch.

Bundle Your Car Insurance

If you’re using separate companies, see if you can save by bundling your policies with one company. As you compare quotes, you might find that switching to the same company for auto and home or renters insurance will net you the most savings.

Improve Your Credit

While improving your credit may not help with your immediate needs, it can help you in more ways than one going forward. In most states, insurance companies review your credit-based insurance score, which is based on the information in your credit report, when determining your monthly premium. If you have bad credit, you may be paying up to 137 percent more for car insurance. Work on paying off debt, correcting errors on your credit report, and making on-time payments to improve your credit score. If you lack a credit history, consider opening a secured credit card or taking out a credit-builder loan to get established.

Explore State Programs

Only a handful of states have government-sponsored car insurance programs for low-income drivers. But even if you don’t live in one of these states, you should contact your local DMV if you’re a low-income individual experiencing financial hardship. There may be local programs or other resources available to you. The following state programs are available to help low-income residents:

What Happens if You Can’t Pay Your Car Insurance Bill?

Car insurance is legally required in all states except New Hampshire and Virginia. In other states, you can face severe penalties if you are caught driving without a car insurance policy. These can range from thousands of dollars in fines to jail time and can result in the suspension of your driver’s license and registration. But those costs aren’t nearly as devastating as the financial fallout of some car accidents. If you cause an accident without car insurance, you’ll not only be on the hook for damages to your own vehicle, but you’ll also be liable to pay for the other driver’s repairs and medical bills. In most states, the other party can sue you after a crash, and judgments can amount to tens of thousands of dollars. Don’t try to submit a fake insurance card to law enforcement, either, since this constitutes fraud and can result in even more severe penalties. In many states, insurance verification systems can detect a lapse in insurance immediately. If you want to retain your driving privileges and protect your finances, you should take every reasonable measure to avoid allowing your insurance to lapse.

Change Your Due Date to Avoid a Lapse

If you’re having cash flow issues, contact your insurance company. Many insurers will allow you to change the date your bill is due and still keep your policy. This could give you a few extra weeks to come up with the funds to pay your premium.

Borrowing Options for Temporary Needs

If your financial hardship is temporary and you have a plan to get back on track, you can borrow money to keep your insurance policy in-force. Just make sure the monthly payment fits into your budget. You should also avoid loans with terms longer than two years, since high interest charges can put a strain on your income. There are a few options you can consider if you need to borrow money to pay your car insurance bill.

Credit Card

If you already have a credit card, you can use it to pay for your car insurance premium. If you’re able to pay off the balance during the grace period, you’ll avoid interest. Creditworthy borrowers who need more time to repay a balance may also opt to apply for a 0% introductory APR credit card. But if you have bad credit or need more than a month to cover your insurance bill, consider other options.

Personal Loan

Personal loans are unsecured loans that typically have lower interest rates than credit cards. The average APR on a 24-month personal loan is about 9.6 percent, and borrowers with excellent credit can get even lower rates. You should compare rates from multiple lenders to find the best option for you. In addition to the APR, pay attention to the origination fee, which will typically come out of the cash you receive from the lender, and avoid personal loans with prepayment penalties.

Auto Equity Loan

If you made a down payment on your vehicle or have paid off some of your auto loan, you may be able to borrow against the equity you have in your car. An auto equity loan is secured by your car, which means the lender can seize your vehicle if you fail to repay. This means less risk for the lender, which can result in lower interest rates for the borrower. However, if you don’t feel confident that you will be able to repay the loan, you shouldn’t risk losing your car.

Installment Loan

If you have bad credit or no credit history, most borrowing options may be out of reach. But some lenders offer no credit check installment loans that you can use to cover your car insurance bill. These loans typically have higher interest rates than an auto equity loan, but they’re cheaper and have better terms than a payday loan or title loan. What’s more, while payday lenders don’t report to the major credit bureaus, some installment lenders do. Find a lender that offers a term with a monthly payment you can afford, and be sure to make on-time payments to build your credit score. Next time you find yourself in a tough spot, you may be eligible for less costly forms of credit.

When You Should Consider Selling Your Car

While borrowing can get you through temporary hardship, if your income doesn’t cover the cost of owning your car, you might consider selling. Calculate your ownership cost and check to see if it fits in your budget. If it doesn’t, and you can’t find a way to save money on your ownership costs, you have a couple of options. You could trade in your car for a vehicle that is less costly to insure and maintain, or you could look into whether the public transit system in your area meets your needs. If you decide to sell your car, look up the Kelley Blue Book value to ensure you get a fair offer. Once you receive the funds, use the money responsibly — either pay down debt, put the money in savings, or both. And be sure to draw up a new budget that accounts for public transit costs. With time and strict saving, you may be able to afford a car again one day.

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