Can the bank repo my car for no insurance?

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In a nutshell...
  • Your bank can repossess your car because you have no insurance, but they probably won’t
  • It’s more likely that your bank will force place insurance on your car to protect your interest, and charge you for this very expensive coverage
  • Your best bet is to try to work with your bank if you’re having trouble paying for both your car and the insurance

If you have purchased a car, you probably needed to take out a loan from a bank or finance company to pay for it.

At the time you bought it, you needed to prove to the lender that you had insurance for the car.

But what happens if your insurance lapses or is canceled, or you don’t renew it? Can the lender repossess your car? Enter your zip code above for FREE car insurance quotes today!

The Lender’s Position

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Your loan probably includes a clause saying that you are required to maintain insurance on your car.

If you have an accident, or your car is stolen, your lender wants to be sure that the insurance company will pay to repair or replace your car so you won’t default on your loan.

Your loan probably says that the bank can, in fact, repossess your car if you don’t keep it insured. However, they will probably only do so as a last resort.

Force-Placed Insurance

If you take out a loan to buy a car and then fail to insure it, the lender can take steps to insure it themselves. They do this to protect their interest in the vehicle.

The lender purchases the insurance, and makes you, the borrower, pay for it — which is why it’s called force-placed insurance.

There are two critical things that every borrower should understand about force-placed insurance:

– Protection for the Lender’s Interest

One type of force-placed insurance is called Vendor Single-Interest Insurance. With VSI, if your car is damaged or stolen, only the amount you owe is covered.

For example, suppose you buy a car for $30,000. You put $10,000 down and take out a loan for $20,000. You pay the loan for a year or two so now you owe $15,000, but the car is worth $20,000.

The bank you got your loan from is notified by the insurance company that your insurance policy has been canceled and you no longer have coverage.

The bank places VSI coverage on your car of $15,000. If your car is totaled or stolen, the insurance company will pay $15,000 to the bank, and nothing to you.

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– Very Expensive

A force-placed insurance policy can cost two or three times as much as a policy you can obtain yourself. If you have an accident, and the policy pays out, your premium will go up.

Since the insurance premium will be added to your loan payment, it won’t be long before you cannot keep up with your car loan either, and then your car will likely be repossessed by the lender.

A force-placed insurance policy can cost two or three times as much as a policy you can obtain yourself.

What to Do if You Can’t Afford Your Insurance

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There are steps you can take to try to prevent your lender from force placing insurance on your car.

If you are having difficulty keeping up with your auto insurance payments, try these tips:

– Shop Around

Comparing rates from different insurance companies will help you get the best insurance for your vehicle at the lowest

You may also be eligible for a discount if you are active or retired military, or belong to some other group or organization.

– Only Buy What You Need

Check the requirements for your state and your lender, and purchase only the coverage that they require.

– Watch Your Deductible

The deductible is the amount you have to pay if there is a claim. The higher the deductible, the lower your premium.

Make sure your deductible is low enough that you can pay it if you need to but high enough to keep your premium as low as possible.

– Talk to Your Lender

As soon as you realize you may have trouble making your loan payment or paying for your insurance, call your lender.

See if they can work with you to make the payments more reasonable by refinancing your loan at a lower interest rate or longer term.

Keep in mind that the bank or finance company who loaned you the money to buy your car doesn’t want your car. They want the money you borrowed plus interest.

If they have to repossess your car, it will end up costing them money to have it picked up. Then they’ll have to sell it to recoup the money they loaned you.

Enter your zip code below to get FREE car insurance quotes today!

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