Auto loans allow individuals the ability to afford vehicles more comfortably within their budget. While acquiring a loan is a great option, it can sometimes be a complicated and confusing process, especially when it comes time to factor in the insurance for the car. However, the following information will help you to understand how auto insurance ties into auto loans and how you can find out the requirements necessary for both.
Is Auto Insurance Required?
Auto insurance is not actually required to apply for a car loan. Insuring your car is required in most states, but you do not need to insure the car until it has been purchased. However, almost every car lending institution requires you to have car insurance before they give you an auto loan. So, although the law may not require you to have insurance before applying for an auto loan, a lending institution nearly always requires it.
What Kind of Coverage Is Needed?
The reason lending institutions require insurance in general is to cover the potential costs in the event of an accident. If you total a car, you are unlikely to continue making payments on that car. Therefore, lending institutions require liability coverage, at a minimun, be purchased for your vehicle to cover the costs associated with an accident. This insurance will cover medical as well as other costs for your car or an injured party should you be at fault. While only liability insurance is required, there are other forms of insurance, such as comprehensive and collision, that will help to deflect the costs associated with an accident. These forms are not necessary in order to acquire the loan, you may want to consider these options as they could prove to be worthwhile investments should you be in an accident.
How Can I Determine What Coverage the Lender Requires?
Lenders generally have requirements about the amount of coverage you must carry on your car. While the amount might only be the state's required amount of coverage, other lenders could ask for more coverage. For this reason, the cost of insurance should be part of the research you do before purchasing a car. You should know that the cost of insurance varies widely and depends on the make as well as the model of the car. Sports cars are generally more expensive to insure because the repairs necessary in the event of an accident will be costly. In addition to the rates of the insurance, be sure to ask the auto loan institutions about deductible limits. A deductible is the amount you will pay out of pocket before the insurance company begins to pay for costs associated with an accident. Most auto loans have a requirement on deductibles, usually requiring that it is at least $1,000 or less. Overall, you can look on-line or speak with the institution directly in order to determine the coverage the lender will require and if the deductible they offer suit your financial needs.