You probably have a lot of people telling you that you need car insurance. Most states have minimum required coverage that you have to have to legally drive your vehicle. The car dealership will also probably tell you that you should have car insurance before driving the vehicle off the lot. Finally, your lender for your vehicle will likely require that you have car insurance.
There is no doubt that car insurance is important and necessary. But what happens if you don’t have car insurance? What happens if your insurance lapses for some reason or your lender finds out you don’t have the required coverage? Can they take your vehicle? There are a lot of things to know and understand about car insurance when it comes to your lender.
Why Lenders Are Involved
You may wonder why your lender is involved in your car insurance coverage at all. Banks and finance companies have to protect their investments. They have an interest in your vehicle because it is securing the loan that you took out to buy it. If something happens to the vehicle in a natural disaster, theft, or car accident, they need to know that the loan will be repaid.
Most lenders will put into your loan agreement that you must keep continuous full coverage car insurance on your vehicle. If you fail to do so, you are in violation of the terms of the loan. At that point, the lender has a few options for what to do about it.
What Coverage is Required
Most lenders require that you have full coverage car insurance. This means that you must have insurance coverage for comprehensive, collision, liability, and theft. Since most states only require liability coverage to drive legally, it can be tempting to get the bare minimum coverage to keep your premiums low. However, there can be some real consequences for not keeping the car insurance coverage that your lender requires.
What They Can Do
Lenders have two main options when your car insurance lapses or you don’t have adequate coverage. Most lenders will put in the loan agreement that if you do not keep appropriate car insurance coverage on the vehicle, you can be put on force placed insurance. Force placed insurance can be up to 10 times more expensive than regular car insurance, and it only covers damages to your vehicle up to the value of the loan.
Most lenders will take this option rather than repossessing the vehicle. In most cases, vehicles are not worth the amount of money that is owed on them. When you first drive a new car off the lot, the value of the vehicle automatically and immediately drops, and it continues to drop as time goes on and miles are put on the vehicle. If the lender repossesses the vehicle, they are not likely to be able to sell it for the loan amount, and they will take a loss.
For this reason, lenders very rarely repossess vehicles for not having car insurance. Although it is usually in the loan agreement that they can repossess the car for not having insurance, they are not likely to do so. They are more likely to use force placed insurance to protect their investment without any additional costs to them. The high cost of the force-placed insurance is passed on to you, the borrower.
If the lender does use force placed insurance and you do not pay the cost of the coverage or your payment, your vehicle could still be repossessed. If a lender feels that you are not able to maintain the terms of the loan, and you are currently failing to do so, they can repossess the vehicle at any time after your car insurance coverage lapses.
What to Do
If you are having trouble paying both your car insurance and your bank loan on your vehicle, the best thing you can do is talk to your lender. You may be able to work out a payment arrangement so that you can keep your car insured and keep it from repossession from lack of payment. Your lender can tell you the minimum coverage that you must have to be within the terms of the loan as well, and you may be able to lower your current coverage to save money.
Another thing that you can do if you are struggling to pay both insurance and car note is to shop around for the best car insurance rates. Getting several online quotes from multiple car insurance companies will ensure that you are paying the least possible amount for the coverage that you absolutely need. The consequences of not having insurance are simply not worth it.