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Car finance ›
Does car finance include insurance?
Updated: Tuesday, 13 February 2024
Car finance is a popular route for many in the UK who want to buy a new car without paying it all upfront. Generally, a car finance agreement won’t include insurance, as they are two very separate products provided by different companies. This means you’ll need to arrange the appropriate insurance policy for your car.
There are certain cases where a car finance company may join forces with a separate insurance company to offer package deals to customers, though these aren’t common. In most cases, car finance does not include insurance, and we can’t speak for any lenders that offer insurance alongside it.
Car finance is a popular route for many in the UK who want to buy a new car without paying it all upfront. Generally, a car finance agreement won’t include insurance, as they are two very separate products provided by different companies. This means you’ll need to arrange the appropriate insurance policy for your car.
There are certain cases where a car finance company may join forces with a separate insurance company to offer package deals to customers, though these aren’t common. In most cases, car finance does not include insurance, and we can’t speak for any lenders that offer insurance alongside it.
Summary: At Moneybarn, we don’t offer car finance and insurance together. You’ll be responsible for maintaining and servicing the vehicle. This includes arranging comprehensive insurance with a voluntary excess of no more than £500.
Summary: At Moneybarn, we don’t offer car finance and insurance together. You’ll be responsible for maintaining and servicing the vehicle. This includes arranging comprehensive insurance with a voluntary excess of no more than £500.
Why does car finance not include insurance?
When we’re asking the question, ‘does car finance include insurance?’ we need to remember that car finance and insurance policies are two very separate products that are based on the circumstances of the named person.
A car finance agreement is a legally binding contract between an individual and a finance company based on repayment terms that are calculated by looking at the applicant’s financial circumstances (following credit checks and affordability checks).
Likewise, the terms and conditions of an insurance policy apply to the owner of the policy and no one else. For insurance to be valid, extensive checks must be made into your personal circumstances and driving history.
Because car finance and insurance are so specific to the individual applicant, it is difficult for those providers to work together.
The interest rate you’re offered will depend on your credit score and borrowing history at the time of applying. Read our personal finance expert’s guide for tips on what you can do to improve your credit score.
What is car insurance and what does it cover?
Car insurance can cover damages to the insured vehicle, liability for injuries or damage caused to others, and theft or vandalism. Policies vary in what they cover, with comprehensive insurance offering broader coverage compared to third-party or third-party fire and theft policies:
- Fully comprehensive insurance: this is the top level of insurance, covering yourself, your passengers, any third-party involvement, theft and the vehicle itself. Be aware, though, that when selecting the policy, a provider might charge more for add-ons such as breakdown cover and roadside assistance.
- Third-party fire and theft: this covers any damage to the vehicle, third-party involvement and fire and theft. However, you and your passengers are not covered and could see hefty bills if caught in an accident.
- Third-party only: this policy only covers damage to a third party and is the lowest level of insurance that you can get. It is often the cheapest policy available but doesn’t provide any further protection.
For drivers in the UK, car insurance is a legal requirement. Younger drivers may find that their insurance costs are higher when they first pass their driving test, but premiums will likely decrease over the years, provided they can build up a no-claims bonus.
You can learn more about the different types of car insurance by reading our full guide.
Guaranteed asset protection (GAP) insurance
Another type of insurance associated with vehicles is guaranteed asset protection (GAP) insurance. This is a type of insurance that exists to protect owners, including those with car finance deals, from losing money in the event of an accident or if they are the victim of vehicle theft.
When you buy a brand-new car, it can lose value significantly (known as depreciation) in the first few years following its initial registration. If your car is stolen or written off in an accident during this time, your standard insurance typically pays out the current market value of the car at the time of the incident. However, this amount might be lower than what you owe on your car finance, especially if you’ve put down a small deposit or if the car has depreciated significantly.
GAP insurance covers this difference or ‘gap’ between the car’s loss of value and what you still owe on your finance. It helps make sure that you’re not left with outstanding payments on a car that’s no longer usable.
For example: you buy a vehicle worth £15,000 on finance. You agree as part of the finance deal to pay interest of £5,000 giving a total of £20,000 to pay. Something happens to the vehicle and the insurance company pay £10,000 to cover the value of the vehicle at that point in time. However, you still owe £15,000 to the finance company. GAP insurance is designed to pay the difference, or GAP, between those amounts, in this case, £5,000.
What to consider when applying for car finance
Why does car finance not include insurance?
When we’re asking the question, ‘does car finance include insurance?’ we need to remember that car finance and insurance policies are two very separate products that are based on the circumstances of the named person.
A car finance agreement is a legally binding contract between an individual and a finance company based on repayment terms that are calculated by looking at the applicant’s financial circumstances (following credit checks and affordability checks).
Likewise, the terms and conditions of an insurance policy apply to the owner of the policy and no one else. For insurance to be valid, extensive checks must be made into your personal circumstances and driving history.
Because car finance and insurance are so specific to the individual applicant, it is difficult for those providers to work together.
The interest rate you’re offered will depend on your credit score and borrowing history at the time of applying. Read our personal finance expert’s guide for tips on what you can do to improve your credit score.
What is car insurance and what does it cover?
Car insurance can cover damages to the insured vehicle, liability for injuries or damage caused to others, and theft or vandalism. Policies vary in what they cover, with comprehensive insurance offering broader coverage compared to third-party or third-party fire and theft policies:
- Fully comprehensive insurance: this is the top level of insurance, covering yourself, your passengers, any third-party involvement, theft and the vehicle itself. Be aware, though, that when selecting the policy, a provider might charge more for add-ons such as breakdown cover and roadside assistance.
- Third-party fire and theft: this covers any damage to the vehicle, third-party involvement and fire and theft. However, you and your passengers are not covered and could see hefty bills if caught in an accident.
- Third-party only: this policy only covers damage to a third party and is the lowest level of insurance that you can get. It is often the cheapest policy available but doesn’t provide any further protection.
For drivers in the UK, car insurance is a legal requirement. Younger drivers may find that their insurance costs are higher when they first pass their driving test, but premiums will likely decrease over the years, provided they can build up a no-claims bonus.
You can learn more about the different types of car insurance by reading our full guide.
Guaranteed asset protection (GAP) insurance
Another type of insurance associated with vehicles is guaranteed asset protection (GAP) insurance. This is a type of insurance that exists to protect owners, including those with car finance deals, from losing money in the event of an accident or if they are the victim of vehicle theft.
When you buy a brand-new car, it can lose value significantly (known as depreciation) in the first few years following its initial registration. If your car is stolen or written off in an accident during this time, your standard insurance typically pays out the current market value of the car at the time of the incident. However, this amount might be lower than what you owe on your car finance, especially if you’ve put down a small deposit or if the car has depreciated significantly.
GAP insurance covers this difference or ‘gap’ between the car’s loss of value and what you still owe on your finance. It helps make sure that you’re not left with outstanding payments on a car that’s no longer usable.
For example: you buy a vehicle worth £15,000 on finance. You agree as part of the finance deal to pay interest of £5,000 giving a total of £20,000 to pay. Something happens to the vehicle and the insurance company pay £10,000 to cover the value of the vehicle at that point in time. However, you still owe £15,000 to the finance company. GAP insurance is designed to pay the difference, or GAP, between those amounts, in this case, £5,000.
What to consider when applying for car finance
Credit history
Responsible lenders will carry out thorough affordability checks before offering you car finance. Depending on your credit score and history, you might find that mainstream lenders aren’t able to help you. This might be the case if you’ve missed payments in the past or have a CCJ or IVA.
Agreement term
The length of the agreement will play a part in determining the size of the monthly payments you make. Borrowing an amount of money over a shorter period will result in higher monthly payments but can mean you end up paying less overall, as you will accrue less interest.
Interest rates and APR
As stated above, car finance will include interest as part of the total debt owed. You’ll need to understand the annual percentage rate (APR) offered by lenders. A lower APR means less interest paid over the agreement term, which could potentially help you save money overall.
Credit history
Responsible lenders will carry out thorough affordability checks before offering you car finance. Depending on your credit score and history, you might find that mainstream lenders aren’t able to help you. This might be the case if you’ve missed payments in the past or have a CCJ or IVA.
Agreement term
The length of the agreement will play a part in determining the size of the monthly payments you make. Borrowing an amount of money over a shorter period will result in higher monthly payments but can mean you end up paying less overall, as you will accrue less interest.
Interest rates and APR
As stated above, car finance will include interest as part of the total debt owed. You’ll need to understand the annual percentage rate (APR) offered by lenders. A lower APR means less interest paid over the agreement term, which could potentially help you save money overall.
What to consider when buying car insurance separately from car finance
1. Shop around to find the best deal
To find the best insurance deals for your new or used car, shop around and compare prices from different providers.
Inexperienced or young drivers may find that insurance costs more than average, as providers typically have higher premiums for drivers that pose a higher risk.
Also, new vehicles or those with a large engine size typically attract higher insurance premiums compared to used vehicles.
2. Car tax payments
While car finance might cover road tax payments as part of the package, insurance policies are separate. Understanding the distinctions between these payments is essential to avoid confusion about what’s included in the finance agreement.
Read our full guide to learn more about vehicle tax.
3. Level of cover
When deciding what insurance policy to take out against your car, you’ll need to understand the difference between each policy. From fully comprehensive, third-party, fire, and theft, and third-party only, each policy has its pros and cons, and the best option for you will depend on your individual circumstances.
If you decide to finance your car, you’ll also need to check your agreement to see if there’s a minimum level of insurance you must have. This is usually comprehensive insurance, but it’s best to check your contract or speak with your lender if you’re not sure.
Car finance from Moneybarn
Even though we don’t offer car finance with insurance included, we may still be able to help you access the credit you need to spread the cost of buying your next car if you don’t want to buy it outright.
We’re one of the UK’s largest car finance providers for people with bad credit. We’ve over 30 years of experience, so if you’ve experienced bankruptcy, have a County Court Judgment, or are looking for car finance while collecting benefits, use our car finance calculator to see what your finance payments could look like.
Representative 30.7% APR.
FAQs about car finance and insurance
Do I need car insurance?
Yes, having car insurance is a legal requirement in the UK. It’s mandatory to have at least third-party insurance to cover the costs of damage or injury caused to other people, vehicles, or property in case of an accident.
What level of insurance do I need when buying a car on finance?
Most car finance companies require comprehensive insurance with a reasonable voluntary excess. We can’t speak for other lenders, but if you choose to finance a car with us, you’ll need comprehensive cover with a voluntary excess of no more than £500.
What to consider when buying car insurance separately from car finance
1. Shop around to find the best deal
To find the best insurance deals for your new or used car, shop around and compare prices from different providers.
Inexperienced or young drivers may find that insurance costs more than average, as providers typically have higher premiums for drivers that pose a higher risk.
Also, new vehicles or those with a large engine size typically attract higher insurance premiums compared to used vehicles.
2. Car tax payments
While car finance might cover road tax payments as part of the package, insurance policies are separate. Understanding the distinctions between these payments is essential to avoid confusion about what’s included in the finance agreement.
Read our full guide to learn more about vehicle tax.
3. Level of cover
When deciding what insurance policy to take out against your car, you’ll need to understand the difference between each policy. From fully comprehensive, third-party, fire, and theft, and third-party only, each policy has its pros and cons, and the best option for you will depend on your individual circumstances.
If you decide to finance your car, you’ll also need to check your agreement to see if there’s a minimum level of insurance you must have. This is usually comprehensive insurance, but it’s best to check your contract or speak with your lender if you’re not sure.
Car finance from Moneybarn
Even though we don’t offer car finance with insurance included, we may still be able to help you access the credit you need to spread the cost of buying your next car if you don’t want to buy it outright.
We’re one of the UK’s largest car finance providers for people with bad credit. We’ve over 30 years of experience, so if you’ve experienced bankruptcy, have a County Court Judgment, or are looking for car finance while collecting benefits, use our car finance calculator to see what your finance payments could look like.
Representative 30.7% APR.
FAQs about car finance and insurance
Do I need car insurance?
Yes, having car insurance is a legal requirement in the UK. It’s mandatory to have at least third-party insurance to cover the costs of damage or injury caused to other people, vehicles, or property in case of an accident.
What level of insurance do I need when buying a car on finance?
Most car finance companies require comprehensive insurance with a reasonable voluntary excess. We can’t speak for other lenders, but if you choose to finance a car with us, you’ll need comprehensive cover with a voluntary excess of no more than £500.
For a better road ahead
Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.
Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.
Moneybarn’s VAT registration number is 180 5559 52.
Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)
Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)
