Can the Bank Take My Car If I Don’t Have Insurance?

Last Updated on June 17, 2023

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 or your lender finds out you don’t have the required coverage? Can they take your vehicle? There are many things to know and understand about car insurance when it comes to your lender.

Can the Bank Take My Car If I Don’t Have Insurance?

Why Lenders Are Involved

You may wonder why your lender is involved in your car insurance coverage. 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.

All car loans have minimum insurance requirements. Most lenders will put into your loan agreement that you must keep continuous full coverage car insurance on your vehicle.

If you fail to maintain your lender’s minimum insurance requirements, you violate the loan terms. At that point, the lender has a couple of options for what to do about it. They can either repossess your vehicle or force-place insurance on your car.

What Coverage Is Required

As stated above, most lenders require that you have full coverage car insurance. Full coverage includes, but is not limited to, liability coverage, collision coverage, comprehensive coverage, uninsured motorist coverage, and gap coverage.

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 loan’s value.

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 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 cannot 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 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 need. The consequences of not having insurance are simply not worth it.

James Shaffer
James Shaffer James Shaffer is a writer for and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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