Do Financed Cars Need Full Coverage Insurance?
Buying and financing a car can seem like a joyous experience,but the vehicle loan represents a significant risk for lending institutions and borrowers alike launch crp229. Full coverage auto insurance helps offset some of this risk,and drivers can take out some optional coverage to ensure they can fully pay off the car loan in the event of a total loss.
Requirements
Banks that finance car purchases typically require borrowers to obtain full coverage insurance on the financed vehicle,according to the insurance website Car Insurance Rates. But the insurance website Affordable Auto Insurance Quotes goes on to explain that coverage requirements are normally outlined in the financing agreement. Different financial institutions have different requirements for insurance coverage,and some banks require customers to carry higher coverage and maintain lower deductibles auto diagnostic scanner.
Function
When a lending institution finances a vehicle purchase,it takes a risk that it may become unable to recover its investment. In a typical car loan,the bank uses the financed vehicle as collateral; if the borrower does not repay,the bank repossesses the vehicle and sells it to repay the outstanding debt. But if the borrower crashed the vehicle,if someone stole it or if it otherwise became unavailable for the bank to repossess and resell,the bank's risk would increase as the vehicle would no longer have sufficient value to secure the debt. Full coverage insurance,according to the Car Insurance Rates website,pays some or all of the car loan in the event of a crash,theft or other unexpected event.
Gap Coverage
In some cases,even full coverage insurance may not offer sufficient coverage to repay the outstanding balance. If the vehicle's value falls by a significant amount,full coverage insurance may pay only the vehicle's value rather than the full loan amount. In such cases,according to the money-saving website ,the lender may still require the borrower to make payments or pay off the remaining amount. For this reason,according to the website,many borrowers enroll in an optional insurance program known as gap insurance. Named for its coverage of the gap between the vehicle's value and the loan balance,a gap policy acts as supplemental coverage in the event of a total loss.
Benefits
By taking out full coverage insurance,vehicle owners can drive with some confidence that the insurance company will help pay for repairable damages or pay off the outstanding loan balance. Because insurance offers some certainty that the lender will receive some compensation in the event of a loss,full coverage helps make vehicle loans more accessible from otherwise risk-averse financial institutions.
Considerations
Though not all car financiers require full coverage insurance,according to Affordable Auto Insurance Quotes,a total loss of an uninsured financed vehicle can leave borrowers making payments on a car they can no longer drive. In addition,the terms of a financing contract can vary considerably from lender to lender,so Affordable Auto Insurance Quotes cautions that borrowers should carefully review financing offers before signing the agreement.
Related Links
Buying and financing a car can seem like a joyous experience,but the vehicle loan represents a significant risk for lending institutions and borrowers alike launch crp229. Full coverage auto insurance helps offset some of this risk,and drivers can take out some optional coverage to ensure they can fully pay off the car loan in the event of a total loss.
Requirements
Banks that finance car purchases typically require borrowers to obtain full coverage insurance on the financed vehicle,according to the insurance website Car Insurance Rates. But the insurance website Affordable Auto Insurance Quotes goes on to explain that coverage requirements are normally outlined in the financing agreement. Different financial institutions have different requirements for insurance coverage,and some banks require customers to carry higher coverage and maintain lower deductibles auto diagnostic scanner.
Function
When a lending institution finances a vehicle purchase,it takes a risk that it may become unable to recover its investment. In a typical car loan,the bank uses the financed vehicle as collateral; if the borrower does not repay,the bank repossesses the vehicle and sells it to repay the outstanding debt. But if the borrower crashed the vehicle,if someone stole it or if it otherwise became unavailable for the bank to repossess and resell,the bank's risk would increase as the vehicle would no longer have sufficient value to secure the debt. Full coverage insurance,according to the Car Insurance Rates website,pays some or all of the car loan in the event of a crash,theft or other unexpected event.
Gap Coverage
In some cases,even full coverage insurance may not offer sufficient coverage to repay the outstanding balance. If the vehicle's value falls by a significant amount,full coverage insurance may pay only the vehicle's value rather than the full loan amount. In such cases,according to the money-saving website ,the lender may still require the borrower to make payments or pay off the remaining amount. For this reason,according to the website,many borrowers enroll in an optional insurance program known as gap insurance. Named for its coverage of the gap between the vehicle's value and the loan balance,a gap policy acts as supplemental coverage in the event of a total loss.
Benefits
By taking out full coverage insurance,vehicle owners can drive with some confidence that the insurance company will help pay for repairable damages or pay off the outstanding loan balance. Because insurance offers some certainty that the lender will receive some compensation in the event of a loss,full coverage helps make vehicle loans more accessible from otherwise risk-averse financial institutions.
Considerations
Though not all car financiers require full coverage insurance,according to Affordable Auto Insurance Quotes,a total loss of an uninsured financed vehicle can leave borrowers making payments on a car they can no longer drive. In addition,the terms of a financing contract can vary considerably from lender to lender,so Affordable Auto Insurance Quotes cautions that borrowers should carefully review financing offers before signing the agreement.
Related Links