Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jul 14, 2021

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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 possible, you want to maintain continuous coverage on your vehicle to avoid a hike in your rates for a lapse in coverage

If you have purchased a car, you probably needed to take out a loan from a bank or finance company to pay for it. Most lenders require that you purchase full coverage car insurance.

At the time you bought it, you needed to prove to the lender that you had insurance for the car. Can a finance company repo your car for no insurance? Let’s talk about that.

But what happens if your insurance lapses or is canceled, or you don’t renew it? When can a bank repo your car for no insurance? Enter your zip code above for FREE car insurance quotes today.

Your Lender Has the Right to Repossess Your Car For No Insurance (But Probably Won’t)

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 repossess your car if you don’t keep it insured. However, they will probably only do so as a last resort.

FindLaw notes that your lender may seize the vehicle and possibly sell it to recoup their investment.

There are some other things that can cause you to be in default:

  • Selling the collateral on the loan without the bank’s permission
  • Taking the vehicle out of the country
  • You relocate and don’t tell the lender where you went
  • You don’t do regular maintenance on the vehicle
  • You don’t maintain needed full coverage car insurance on the vehicle

Any of these are valid reasons for the dealer repossessing your vehicle.

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Your Lender May Buy Force-Placed Auto Insurance

What happens if you don’t put full coverage on a financed car? If you have no insurance on a financed car— or even if you don’t have full coverage— that’s usually a violation of the terms of your agreement. 

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 auto insurance regulations:

Force-Placed Insurance Protects the Lender

One type of force-placed auto insurance policy is called Vendor Single-Interest Insurance. The Consumer Federation Protection Bureau notes that, while this does protect the lender, it doesn’t cover you. 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 force-placed auto insurance company will pay $15,000 to the bank, and nothing to you.

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Force-Placed Insurance is Very Expensive

Force-placed auto insurance companies’ 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. And, worse, it could lead to a force-placed auto insurance lawsuit.

A force-placed auto 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 Car Insurance

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

There’s another reason you want to keep coverage on your car. If you don’t keep continuous coverage on your vehicle, you may be considered high-risk and future insurance policies will be higher. You can see this increase in the table below.

Percent Increase After Car Insurance Coverage Lapse
Liberty Mutualn/a16.38%n/a
Farmersn/a in SC11.90%6.89%
Nationwideno quote offered13.10%n/a in FL
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If you are having difficulty keeping up with your car insurance payments, try these tips:

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Shop Around for Car Insurance

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 car insurance discounts if you are active or retired military, or belong to some other group or organization.

Watch Your Car Insurance Deductible

The car insurance 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 that 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.

Frequently Asked Questions

We’ve added a few more FAQs below.

How long can you go without making a car payment before repo?

When can your car be repossessed? It does vary by loan, but most of the time if you miss three payments, your vehicle can be repossessed.

Can a bank repossess a car without notice?

Do they have to warn you before they repo your car? Most states do not require lenders to notify you before they attempt to repossess your vehicle. 

Can my car be repossessed if I have paid more than half?

Your car can be repossessed at any point during your loan if you’ve failed to make payments. Until you own it outright, the bank or lender has the right to take their property back.

Can you get a car out of repo?

My car was repossessed. What are my rights? You have some time before the car goes to auction.

This video from 850 Club Credit Consultation, LLC discusses some steps you can take right after your vehicle is repossessed.

Most lenders will allow you to get it out of repo if you pay off the full loan amount plus repossession costs. Some lenders may let you catch up and pay repo costs but then reinstate the loan.

What happens to repossessed car license plates?

In some states, the bank or lender must contact you to enable you to get your personal possessions that were in the vehicle plus plates so that you can turn them into the DMV.

Enter your zip code below to get FREE car insurance quotes today if you’re financing and need coverage.