Do You Have to Pay Insurance on a Financed Car?
Buying a new car is one of the greatest thrills many drivers experience in their lives. Who doesn’t feel like a million bucks driving down the highway in a shiny new car?
But when drive off the lot in your new car, you might find yourself asking some questions that you wished you had thought of when you were sitting there with the finance manager at the car dealership.
Do I Have to Buy Car Insurance If I Have a Car Loan?
The first question that comes to mind is whether or not you need to pay for car insurance. Is auto insurance included your monthly car payment to your lender? It’s a fair question.
After all, when you rent an apartment, renter’s insurance is often included automatically. And when you mortgage a new home, homeowner’s insurance is usually included there too. So what about your new car?
Well, it actually makes sense to think that it would be included, but that is not the case. You still need to purchase insurance on your own.
Your dealership might have included a few days of temporary coverage so that you could drive the car home, but you need to get your own insurance as soon as possible—ideally within 24 hours.
Can I Just Buy the Cheapest Insurance?
A lot of people who get their first car loan are stunned when they go to buy insurance and are told that they need to purchase full coverage, including a bunch of liability insurance and even theft insurance in some cases.
Why can’t you just buy the cheapest coverage?
Most states require a certain level of insurance to be able to legally drive any vehicle, with steep penalties for non-compliance. But the state laws don’t require full coverage.
The reason you need to pay so much is that you aren’t technically the owner of the vehicle yet. Your lender holds title on the car, and they want to protect their property from loss. That’s why they require you to pay for all that extra insurance.
But it can still be to your advantage anyway. After all, what would happen if you ended up getting in a bad car accident and the car was totaled?
Depending on the initial value of the vehicle and the extent of the damages and injuries, you could end up losing your car and still be having to pay thousands of dollars on your loan.
That would be a terrible situation to be in, and if you don’t get sufficient coverage, it could happen to you.
So that’s why you need to not only buy insurance on a financed vehicle, but you need to purchase full coverage as required by your lender.
If you have any questions about the levels of coverage required, you’ll need to check over your contract or contact your lender for help.
Share this:
Category: Car Insurance, Car Purchase
