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Can car get repossessed no insurance

Share Tweet Pin +1The lowdown...
  • Auto loan lenders have very strict contractual requirements that you agree to whenever you sign a finance agreement
  • Any borrower who accepts money to pay for a car needs to comply with loan terms or the car can be taken
  • All lenders want the property they are financing to be insured and this is why they ask for proof of coverage
  • Lenders don’t verify that you have liability coverage but they will ask for proof of full coverage on the vehicle
  • If your policy cancels and the lender is notified, there’s a chance that the car could be repossessed

Never finance a car that you can’t afford to pay for monthly. You’ll have to budget for your monthly auto loan payment and other expenses like fuel, maintenance, and taxes.

If you’re able to afford your principal on your loan plus the interest charge, it doesn’t mean you’re automatically able to afford a vehicle. One expense you must budget for no matter how you’re buying a car is the expense you must pay for auto insurance.

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Auto insurance premiums aren’t avoidable no matter how clever or financially savvy you are. You can shop for low-cost premiums, but you’re never going to get away with paying nothing for coverage unless someone pays your insurance bills for you.

If you ever let your insurance lapse on a financed car, there will be consequences. Here’s what you need to know:

Always Know the Terms of Any Contract You Enter

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You’re entering into a contract with a bank or credit union when you take out a loan to buy a car. Since it’s an auto loan, it’s a form of secured debt. The car is the collateral even when you put down money for loan approval.

As long as you have a stable income and a stable residence, you’ll be able to find a lender willing to offering you some type of financing.

No matter how lenient the lender might seem, all of the documents that you’re required to sign before the check is cut lay out the terms of the loan. You have to comply with these terms not just at the time of the signing, but also for as long as you owe the lender money.

The entire purpose of the terms is to protect the bank from losing money. You should always know the terms whenever you sign a legally binding contract.

What are common terms set in an auto loan agreement?

You’ll have to familiarize yourself with common terms used on auto loan contracts before you visit any finance office to make everything official. After all, you’d like to know what you’re signing before you enter into a relationship that can last an average of four to six years.

Here are some of the conditions set out in the standard agreement:

  • Repayment schedule outlining how often monies will be repaid and when each payment is due
  • Interest charges and how they will be added
  • The amount of the deposit that will be collected as security
  • Requirement to maintain the vehicle while there is a balance on the loan
  • Requirement to keep the vehicle in the United States
  • Requirement to notify the lender when there is material damage to the vehicle
  • The vehicle can’t be sold to another party until the loan is paid off
  • The borrower must buy full coverage insurance on the vehicle financed
  • If there’s a breach, the borrower must pay penalties or the car can be seized
  • Borrowers must agree to mandatory arbitration instead of going through the court system when there are legal disputes

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What happens to a car if the borrower breaches their contract?

If you don’t make your payment by the date that’s stated in the contract and the grace period passes, you’re guilty of breaching your contract.

Luckily, a payment that’s late by just a week or two won’t lead to a defaulted loan. Most companies won’t even consider a loan in default until you’re at least 90 days late.

If you’re 90 days late or you breach your contract in some other way, it’s the finance company’s right to seize the vehicle because it’s a security interest on the auto loan. Taking back the car in the finance world is called repossession.

It’s not always the answer, but it’s most common for cars to be repossessed when the borrower fails to make payments for an extended period of time.

Is it considered a default when you don’t have insurance?

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You have to have auto insurance on a financed car.

If you’re ever caught financing a car that you aren’t insuring, the lender will put the loan in default status. At this time, it’s the lender’s choice to decide what action needs to be taken next. In most cases, the car won’t be repossessed for failing to buy insurance unless it’s happened more than once.

What does it mean when the finance company places lender insurance on your loan?

If your auto company sends the loss payee on your policy a letter saying you don’t have insurance anymore, the lender will, in turn, send you a letter asking you to provide proof that you have coverage somewhere else. If you can’t do this, the bank will take action to protect itself from losing money.

Most auto loan companies have a procedure in place where they will buy lender insurance on cars that don’t actively have coverage. You might think that’s generous but it’s not.

This is coverage you’ll pay for, plus interest, on your loan contract. The charge for the insurance is added to your loan balance. Not only does the insurance raise your payments, it also doesn’t protect you in any way.

What type of insurance do you need?

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The lender wants to see that the security on the loan is being protected or there’s no reason for you to pay your payments. You need to have the bank listed as the loss payee on the loan and you must have comprehensive and collision coverage at all times.

You don’t want to lose your car for being irresponsible. If you feel you can afford a car, you have to be able to afford to pay for full coverage insurance too. Get instant quotes online all at once for a policy with property damage coverage now to start budgeting.

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References:
  1. http://www.consumerfinance.gov/askcfpb/search/?selected_facets=category_exact:auto-loans
  2. http://www.bsis.ca.gov/forms_pubs/cons_grepos.pdf
  3. https://www.thebalance.com/does-financing-a-car-affect-your-car-insurance-527141
  4. http://www.investopedia.com/terms/l/lapse.asp
  5. https://www.edmunds.com/car-loan/how-long-should-my-car-loan-be.html
  6. https://www.consumer.ftc.gov/articles/0056-understanding-vehicle-financing
  7. https://www.debt.org/credit/loans/contracts/
  8. http://www.citizen.org/congress/article_redirect.cfm?ID=7332
  9. http://money.cnn.com/2016/12/01/investing/subprime-unpaid-auto-loans/
  10. http://smallbusiness.chron.com/can-happen-breach-sales-contract-58798.html
  11. https://www.consumer.ftc.gov/articles/0144-vehicle-repossession
  12. http://www.ncdoj.gov/Consumer/Automobiles/Car-Repossession.aspx
  13. http://www.naic.org/cipr_topics/topic_lender_placed_insurance.htm
  14. http://www.michigan.gov/difs/0,5269,7-303-13222_13224-66774–,00.html

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Share Tweet Pin +1Here's what you need to know...
  • Loans for the purchase of cars are given from banks, credit unions, and dealerships
  • If you default on your car loan, lenders are within their rights to repossess your vehicle
  • If you fail top purchase adequate coverage, lenders can sometimes repossess your vehicle
  • Lenders also have the option to purchase insurance and apply that cost to your existing loan
  • Understand all the details of your contract to avoid the possibility of your vehicle being repossessed

Cars are linked to almost everything in the life of Americans. They are used as our transportation to work, shopping, and to school. For that reason, most of us incur debt to purchase dependable transportation for ourselves.

Start comparing car insurance rates by using our FREE tool. Just enter your zip code now!

Many organizations lend money for the purchase and lease of automobiles. You can acquire a loan from:

  • Banks
  • Credit Unions
  • Automobile dealers
  • Auto lending companies

As a wise consumer, you should  go to several of these institutions to obtain the best prices for interest and fees. Another place to obtain information about consumer loans is through the Federal Trade Commission’s Consumer Information Division.

Until the obligation to the lending or leasing company is paid for that company has rights to the property financed which may lead to repossession.

These rights vary from state to state, but they usually include the right to repossess the automobile financed or leased should the purchaser reach default status in repayment.

The time limit for default varies from contract to contract and warrants careful reading of the documents you sign.

If you cannot find the time limit in the contract, ask the vendor for these details. Obviously, you do not intend to default on the contract, but circumstances arise occasionally when the money is just not there.

Clauses included in the financing contract may include the following:

  • Provisions for repossession of the item financed upon default of payment
  • Provisions for levying insurance costs upon failure to purchase insurance covering physical damage for the property being purchased
  • Provisions to allow for repossession of the financed item upon failure to purchase physical damage insurance

Comprehensive and Collision Insurance

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Physical damage insurance is referred to as comprehensive and collision insurance under the automobile insurance contract you purchase from your insurance company.

Detailed information on this coverage can be found by consulting your insurance policy or going to the consumer information portion of the National Association of Insurance Commissioners.

Comprehensive coverage provides reimbursement for damage to your car not caused by collision such as:

  • Theft
  • Hail
  • Hitting an animal

Collision coverage pays for damage from a collision with another object such as:

  • A car
  • A pothole
  • The vehicle flips over

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When Can Lenders Repossess Vehicles for Lack of Insurance?

Lenders often add clauses to contracts requiring the borrower to purchase physical damage coverage for the automobile being financed. Two things can happen if you fail to purchase this type of insurance or allow it to expire.

  1. The automobile may be repossessed and returned to the finance company.
  2. The lender may purchase comprehensive and collision through their own insurance supplier and add the cost of that insurance to your loan.

In most cases, once informed of a cancellation of insurance, the lender will purchase physical damage coverage and add the cost to your loan.

Lenders frequently purchase their own insurance policy which offers automatic physical damage insurance that becomes effective when the insurance of the borrower does not apply.

This insurance is routinely purchased by companies that lend-to-purchase many automobiles because it is less expensive to the lender than attempting repossessions.

Problems with Insurance Provided Through a Lender

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If you are at all familiar with insurance, you are aware that you must purchase liability insurance to legally drive your automobile in most of the United States. The lender’s insurance typically does not provide liability insurance, just insurance on the automobile.

If you depend upon the insurance through the lender to provide liability coverage, you may end up with a citation for failure to purchase liability insurance. However, you could also end up with an expensive bill for injury to others and their property necessary to comply with your state’s laws.

Relying upon the physical damage coverage that may be provided by the lender can lead to excessive premiums and costs added to your loan.

You would be well advised to research the costs of insurance you purchase, add the comprehensive and collision coverage needed to protect your loan, and make sure you pay the premiums.

Suggested Insurance Coverage for an Automobile under Loan

  • Bodily injury liability – $50,000 per person/$100,000 per accident for injury to others for which you are responsible
  • Property damage liability – $50,000 per accident for injury to the property of others
  • Medical payments coverage – $1,000 per accident for emergency medical services if involved in an accident
  • Underinsured and uninsured motorists coverage – $50,000 per person and $100,000 per accident to defray costs if you are struck by someone with less than adequate or no insurance. The deductible should be adjusted to fit your contract with the lender.

Check with your state’s insurance department for information about:

  • Insurance companies licensed to write insurance in your state
  • Limits of liability required to comply with your state’s laws
  • Other consumer information relevant to your state

Links to state insurance departments can be found on the NAIC website for your convenience.

Be careful to understand and know the elements of your contract with the lender to avoid repossession of your vehicle and an increase for costs you may pay.

Start comparing car insurance rates now  by entering your zip code in our FREE tool below!

References:
  1. http://www.edmunds.com/car-buying/how-to-get-pre-approved-for-a-car-loan.html
  2. https://www.consumer.ftc.gov/articles/0144-vehicle-repossession
  3. http://debt.laws.com/repossession/repossession-laws
  4. http://www.naic.org/
  5. https://www.allstate.com/tools-and-resources/car-insurance/what-is-comprehensive-auto-insurance.aspx
  6. http://www.naic.org/state_web_map.htm

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Buying repossessed cars can be a great way to save money. Buyers can often purchase a vehicle at a cost lower than fair market value. However, buying repo cars can be tricky, especially if you are unfamiliar with the way the repossessed car trade works. We've put together a quick guide to help you find and buy repossessed cars safely and at minimum cost.

Use Caution When You Buy Repo Cars or Trucks

Lenders can repossess cars from the registered owners if the registered owners default on car payments. The LA Times reports that, depending on the laws in your state, a payment may need to be late for just a few days in order for a bank to file a levy on a car and send an order to repossess it. Most states enforce a 10-day grace period, however, before allowing lenders to repo autos. Also, most lenders would rather not take the car back because they depend on the interest paid on the loan to make a profit. They may work with customers for months trying to keep the loan going before the go so far as to repossess the vehicle.

That means that by the time the repo man shows up to take the car, the owner has probably already skipped a few months of payments. Many people who receive a notice of repossession from a lender use that opportunity to trash the car, shred upholstery, tamper with the engine, etc. Others may have been in dire financial straits for some time and have lacked the cash to keep up with basic maintenance on the vehicle since the time of purchase. There may have been no oil changes, fluid checks, new tires, etc. for the life of the loan. Any or all of these conditions take their toll on the vehicle.

For this reason, no matter which route you take to find and buy repo cars, it is crucial that you inspect the vehicles thoroughly before purchase. There is usually no test drive, warranty or guarantee on a repossessed auto and often no returns either. That means once you sign and pay, it's yours, running or not.

Four Ways To Buy Repo Cars

1. Buy directly from the lender. Sometimes your bank or credit union will allow you to look at their repo file, which lists all the cars and trucks they have repossessed and would like to sell. Often the lender just wants to recoup their losses, so you can get very good deals this way. Sometimes you can even get financing for the car directly from the lender that owns it.

The downsides to this method are that banks usually do not bother with the expense of cleaning up or repairing the vehicles before reselling them. They want to get their money back quickly and move on with the business of banking. So you may have your work cut out for you to get your new repo car road-ready after you buy it.

To purchase a repo this way, simply make a bid on the car you like from the repo list. Make sure you know the vehicle's NADA Guide low value. The bank may refuse your offer or wait to hear other offers from dealers and other buyers. This part of the process may take a few weeks. If your bid is the best the lender can find, you will usually have a chance to look the car over before paying and signing the paperwork. Make sure to bring a mechanically inclined friend with you when you make the final inspection if you don't know much about cars.

2. Buy from a repo reseller service. These days, you can find many companies online that specialize in helping lenders get rid of their repossessed car inventory. Brandon Macomb, who has worked in repossession sales since 2003, says to look for companies that move the inventory from lender to buyer, without taking ownership. Dealers who buy repo cars and transport them prior to reselling them incur extra expenses, which will inevitably fall on the buyer.

The advantage of working with a reseller service is that these companies often keep up a standard for the condition of the cars. They may even take the initiative to clean and detail each repossessed vehicle and make sure the cars are running well before listing them for sale. Another advantage is that, because sellers do not take ownership of the vehicles, they feel no great pressure to add a high margin to the price tag. In general, they would rather move a lot of inventory quickly, at a small markup, than take the time to make a large profit on each car.

To buy a repossessed car from this kind of seller, locate the vehicle make and model you would like online, from a service you trust. Macomb advises that you avoid resellers who charge viewing fees and other upfront payments before you see the car. Make a bid at or over the minimum bid. If your bid is accepted, take the time to inspect the vehicle before making the final purchase. If you would like to purchase a vehicle out of state, which often happens for high-end items, you can hire an independent inspection service to inspect the car before the sale is final.

3. Buy a repossessed car at a police repo or lender auction. The types of car auctions in the market are virtually limitless, with most selling to used car dealers, not individual buyers. They include government auctions, which offer impounded cars from the police lot, along with repossessed and confiscated vehicles. If you find an auction that is open to the public, make sure you register beforehand, if required, and take a look at the inventory online before you arrive. The procedures for bidding and winning vary, so it's a good idea to attend an auction or two before you make your purchase. Usually, you will need an approved loan or cash in hand, and a deposit if you win.

The advantages of this venue are that you can take a look at stock beforehand, in most cases, and decide on your highest bid. You can also get better prices because of the lack of intermediaries involved. But be careful not to let the excitement of bidding make you pay more than a car is worth.

One of the disadvantages of the auction setting is that cars can be dirty and in disrepair at the time of sale. They may be full of trash, have worn tires or be completely unusable. Any problems become your responsibility once you make the deal. Also, it can be difficult to win against the pros. Craig Howie reported for AOL Autos that most of these events are rigged toward the used car dealers, who agree on a low price for each car before bidding, and then allow one dealer to win by bidding slightly more than all the rest.

4. Buy a repossessed car from a used car dealer. You can save yourself the hassle of bidding at auction by letting a used car dealer purchase the vehicle first. Usually the dealership will clean it up, add a few extra touches like new mats and tires, and sometimes make repairs on the engine. You may be able to get a 30-day warranty, in-house financing and more by going this route.

But all this comes at a premium. Knowing that the dealer bought the car at a repo auction does not change the fact that the dealer still wants the highest profit possible for the vehicle. The dealer had to pay for transport, repairs, detailing, titling and other fees, which will show up in the price tag. In the end, the repo autos on the lot sell at around the same rate as the other used vehicles, unless you are a savvy negotiator.

Research, Bid, Buy

You can find repossessed cars in your area and across the country with the tools and services available on the Internet. Many offer top quality vehicles like Ferraris and Hummers, as well as other items like boats, RVs and planes.

Macomb notes that you should be wary of sites that demand payment before viewing the car in person. You should always inspect thoroughly before you buy, from any source. Once you are sure you have found the vehicle and the purchase price you want, buy that repo car with confidence, and save a bundle.

You may even be able to save a bundle on insurance coverage, but that might take some research. Depending on the car, the state where you live, and the financing option you choose, different coverage may be required. You can get help with your car insurance search from an independent agent. Trusted Choice® independent agents work for consumers instead of for a parent company, and can get several quotes for you to compare before you buy.

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