do you need full coverage on a financed car

Driving off the lot in a new financed car is an exciting feeling. But before you hit the road, there’s a crucial financial step to handle: securing the right auto insurance. You might be wondering about the most affordable option, but with a car loan, the rules are a bit different. This leads many new owners to ask, do you need full coverage on a financed car?

The short and simple answer is yes, you almost certainly do. When you finance a vehicle, you don’t fully own it yet—the lender does. They have a financial stake in the car until you make your final payment, and they need to protect that investment.

Why Lenders Require Full Coverage

Think of it from the lender’s perspective. If your car is totaled in an accident and you only have basic liability insurance, that policy only covers damage you cause to others. It doesn’t pay to fix or replace your own car. The lender would be left with a damaged asset and a loan you might struggle to pay. Full coverage, which typically includes comprehensive and collision coverage, ensures the car itself can be repaired or the loan can be paid off if the vehicle is stolen or destroyed.

What “Full Coverage” Actually Includes

“Full coverage” isn’t a technical term, but it’s a common way to refer to a policy that goes beyond your state’s minimum liability requirements. The key components are collision coverage, which pays for damage from accidents, and comprehensive coverage, which handles non-collision events like theft, vandalism, fire, or weather damage. Lenders often require both, plus liability, to fully protect their interest in the vehicle.

Finding Affordable Protection for Your Financed Car

While full coverage is mandatory, it doesn’t have to break the bank. You can control costs by shopping around and comparing quotes from different insurers. Consider choosing a higher deductible—the amount you pay out-of-pocket in a claim—which can lower your premium. As your car’s value decreases over time, your premium should also become more affordable. Remember, this requirement is temporary; once you pay off the loan, you own the car outright and can reassess your insurance needs.

In the end, carrying full coverage on a financed car is a non-negotiable part of your loan agreement. It’s a protective measure for both you and the lender, ensuring that your new investment is safeguarded from life’s unexpected events while you work towards owning it free and clear.