Car Insurance Requirements for Bad Credit Auto Financing

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - November 2, 2018

If you own your car, the minimum auto insurance requirements are set by the state you live in. But, if you're financing a vehicle, your lender determines how much additional coverage you need. In almost every case, there's only one coverage option that flies: full coverage.

Why is Full Coverage Required with a Car Loan?

The reason lenders typically require full coverage auto insurance when you're financing a vehicle is to protect their asset, which is what your car is. While you have a car loan the vehicle you're driving is not technically yours. Having this auto insurance protection covers any loss to the lender, from a minor fender bender to the total value of the vehicle, if something happens.

Without full coverage insurance, you're responsible for paying off your loan, regardless of whether your car is driveable or not. Lenders know borrowers are much less likely to continue making payments on a vehicle they can’t use, so they require full coverage.

Determining What Your Lender Requires

The amount of coverage you need when you're financing a car depends on your lender, and the state you live in. The insurance required by your lender is outlined in your loan contract and/or your agreement to provide insurance, both of which you have to sign.

If you don't get the required insurance coverage, or let your coverage lapse, it could have dire consequences for your loan. Depending on your lender and contract, not carrying full coverage insurance could result in the lender forcing coverage for you and including the extra cost of their insurance in your monthly payment, or defaulting on your loan, in which case you have to pay the entire balance owed at once, or risk repossession of the vehicle.

Once you know what your lender requires, you can get the appropriate coverage from your insurance agent.

What's Included in Full Coverage Car Insurance

Full coverage auto insurance gives drivers the most protection possible when the unexpected occurs. Whether it's an accident, a theft, or a natural disaster, there are protections built into full coverage that help you cover the costs.

The reason full coverage car insurance can handle any of these situations has to do with the combination of coverages that includes liability, comprehensive, collision, and uninsured/underinsured motorist coverage. Each part of a full coverage auto insurance policy covers a specific type of incident.

Auto insurance is available with many coverage types, but a basic full coverage car insurance package generally includes:

  • Liability Insurance Helps pay for medical bills and property damage that result from an at-fault or no-fault accident.
  • Comprehensive Insurance – Covers areas which are often not the result of an accident, such as damage from fallen trees, hail, theft, or hitting an animal.
  • Collision Insurance – Covers accident-related vehicle repairs.
  • Uninsured/underinsured Motorist Coverage – Protects you in accidents where the other driver either doesn't have, or doesn't have enough, insurance.

Get Started Today

Has an auto accident or incident left you without a vehicle, but you're afraid bad credit is standing in the way of your new car dreams? Stop dreaming – CarsDirect wants to help you get on the path to auto financing today!

We work with a coast-to-coast network of special finance dealerships that have the lending resources available to help you get the financing you need, even if your credit is less than perfect. Plus, you can visit our new and used car guides to research the vehicle that's right for you. What are you waiting for? Fill out our fast, free, online auto loan request form now, and we'll start the process of matching you with a local dealer today.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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