Can a bank repo a car for not having insurance?
If your car loan is financed through a bank, the bank can repo the car for not having insurance. The terms of your loan require you to maintain a level of insurance coverage, and the bank can repossess your vehicle in certain situations.
Free Car Insurance Comparison
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
UPDATED: Jun 29, 2022
It’s all about you. We want to help you make the right cheap car insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident car insurance decisions. Comparison shopping should be easy. We are not affiliated with any one car insurance company and cannot guarantee quotes from any single company.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare cheap car insurance quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
- A loan contract could allow a lender to repossess a car if the borrower loses auto insurance coverage
- Lenders commonly require auto liability, comprehensive, and collision coverage
- Lenders could purchase forced-place insurance, which the borrower/driver likely won’t appreciate
- Comparison shopping for a great policy might reduce the chances of losing coverage
Drivers often purchase a car with an auto loan. Financing the vehicle eliminates paying full price for the vehicle in cash. While drivers with banknotes see themselves as the owners of their cars, the auto lender company holds the title.
That means the bank owns the car until the low is paid off. Until the loan balance is paid in full, borrowers/drivers are obligated to follow all terms the lender dictates in the loan contract. Breaching the terms of the auto loan may lead to the finance company repossessing the car.
Failure to make timely payments on the loan reflects the most common reason for the repossession process. Other reasons exist including not protecting the vehicle with a current, valid auto insurance policy.
Drivers may be shocked to discover their car suffers repossession due to a lack of insurance even when all loan payments are current. It does not matter if there are no late payments because a lack of insurance violates the loan agreement.
Don’t drive without insurance! Find the best coverage from an auto insurance provider for the best rate by comparing quotes right here!
The Contract Terms
If the terms of the loan contract state the lender retains repossession rights in the advent of insurance coverage lapses, then the lender can legally repossess the vehicle. Of course, the lender must follow all applicable state repossession laws.
If the contract does not afford the right to repossess if insurance lapses, then the lender cannot reclaim the vehicle. More than likely, the lender has put an insurance clause into the loan note. Not including that clause makes the loan incredibly risky for the lender.
A bank can potentially suffer a major loss on loan default. Repossessing the car and selling it allows the bank to recoup a least a portion of a defaulted loan.
Likely, the bank experiences a loss undertaking repossession so lenders frequently seek to work things out when a borrower’s payments are late.
When the vehicle has no current insurance coverage, however, the bank may be forced to move quickly with repossession. If an uninsured vehicle is totaled, then the lender would not be able to recoup the balance on the loan.
Compare quotes from the top car insurance companies and save
Secured with SHA-256 Encryption
The three types of coverage commonly required when taking out an auto insurance loan include:
- Auto liability
Auto liability insurance is mandated in almost every state. Not carrying auto liability insurance invites a variety of different penalties. In certain states, jail time is possible.
Beyond the legal woes, a lack of liability insurance creates massive financial risks. Auto liability protection could keep an at-fault driver from bankruptcy after causing an accident.
Ultimately, auto liability insurance pays for damages inflicted upon others up to the terms of the policy. In other words, the insurance policy pays for the driver’s mistakes.
Auto liability coverage does not pay for damages to the at-fault driver’s own vehicle. Collision and comprehensive coverage would be the appropriate coverages to handle these losses.
Comprehensive and collision insurance are not mandated by state law, but the lender clearly has a good reason to require these coverages.
A driver who damages/totals the car by being at fault for an accident can file a collision claim to, hopefully, cover the loss. Comprehensive coverage would cover non-accident-related disasters such as:
- weather events
Again, the lender knows an insurance settlement payoff may be applied to the remaining loan balance. No guarantees exist the borrower could pay off the full balance — or would even attempt to — on a total loss vehicle.
Examine Uninsured/Underinsured Motorist Coverage
One other type of coverage may be worth purchasing even if neither the lender nor the state mandate it: uninsured/underinsured motorist insurance.
When another party, one not carrying appropriate insurance, is liable for destroying the car, a settlement on uninsured/underinsured motorist could go towards the unpaid balance.
This type of insurance coverage eliminates the drawn-out process of suing the at-fault driver to recover money. And no guarantee exists the defendant has the money to pay.
Besides repossession, a lender could explore another option. The borrower probably won’t like it, though.
Rather than repossess the vehicle, the insurance company could purchase insurance on the vehicle. The driver/borrower, however, won’t benefit from the deal at all. The financing company would purchase “force-placed insurance” and do so to protect itself.
The driver/borrower does not gain any insurance coverage at all with this policy in place. He/she remains personally responsible for any auto liability judgments. He/she experience the indignity of paying for the insurance, a cost added onto the loan balance.
Moreover, the cost of force-placed insurance usually runs very high. The lender has no real reason to look for deals or comparison shop on behalf of a borrower.
Borrowers/drivers absolutely should perform effective comparison shopping in order to acquire the best policy. With an affordable insurance policy in place, losing coverage becomes less likely. Problems with the lender could then be avoided.
Compare car insurance quotes to find the best one for your needs. Enter your zip code below to get started.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about car insurance. Our goal is to be an objective, third-party resource for everything car insurance-related. We update our site regularly, and all content is reviewed by car insurance experts.