When you finance a car, does it include insurance?

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Things to remember...

  • If you finance a car, you have to comply with the terms of the finance contract to avoid raising the balance of your auto loan
  • When you’re borrowing from a lender to buy a car, you’re technically not the vehicle owner or titleholder until you’ve paid off your loan
  • When you pay the auto loan off, you will receive a clear title
  • Even though you don’t legally own the vehicle outright, it’s your duty as the registered owner of the car to maintain insurance on the vehicle
  • The lender and the dealer will not provide coverage for the car once you take possession of it
  • Not only does the borrower have to comply with auto insurance laws mandated by the state, they also have to comply with the rules set forth by the lender
  • Virtually all lenders require their borrowers to purchase full coverage that includes at least comprehensive and collision coverage.
  • Many lenders will also limit the deductible that you choose to $500 or lower to ensure that you can repair the car when it’s damaged

When you buy a car, there are two ways that you can qualify for a loan. These two options are referred to as direct lending and dealership financing.

As a borrower, it’s up to you to decide if advance credit terms offered directly through the bank offers more of an advantage than the convenience that you can enjoy in the dealership finance office.

While the process of obtaining each loan is different, most loans that you secure directly from your bank or credit union have the same requirements and terms as the loans that you can select from the dealer.

One of the terms that you have to comply with when you’re borrowing a great sum of money to buy a car involves insurance.

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Is auto insurance included in your finance contract?


When you’re approved for a loan, the creditor will issue a statement that shows how much you’ll pay each month, how much you’re financing, what the Annual Percentage Rate is, the finance charge, and the total cost of all of the payments.

All of the charges will be found in the loan contract. If you decide to add extras like a warranty or GAP insurance that’s sold in the finance office, the amount financed and total interest paid can change.

It’s important that you know that the contract won’t automatically provide you with insurance for the car. It’s your duty to buy auto insurance separately.

What is the difference between GAP insurance and auto insurance?

If you’ve financed a car and purchased GAP auto insurance with your contract, you might have assumed that you were paying for your insurance each time you paid your car note. While this is a fair assumption to make, GAP insurance isn’t the same thing as standard auto insurance.

You still need a standard auto insurance policy when you buy the supplemental coverage.

GAP insurance stands for Guaranteed Auto Protection. It’s a supplemental form of coverage that’s available to help protect you from financial loss if you total a car that’s being financed or leased.

The purpose of GAP coverage is to pay after the standard auto insurance pays out the car’s total value after a damage loss. As its name implies, GAP insurance is supposed to fill in the gap that’s present when you owe more than a car is worth.

You’re Required By the State to Buy Auto Insurance

When a state has a mandatory auto insurance law, it’s the legal owner’s responsibility to comply with the law.

If you own the car outright, there’s no question who the legal owner is. When you’re financing a car, you don’t technically own the car until the loan balance reaches $0.

Even though you’re not the title holder or owner of the car, it’s your duty to register the vehicle that you’re financing in your name.

In fact, the dealer will finance the car for you showing you as the registered owner. Since you’re the registered owner of the car, it’s your job to buy a minimum amount of mandatory coverage on your car so that you satisfy the law and avoid penalties.

What kind of coverage is required by the state?


You need to comply with state law to avoid being cited for a misdemeanor.

While coverage is required, not all coverage is mandatory. Each state has different coverage requirements based on the type of system that the state operates under.

Most of the requirements are means to pay for others damages and not yours. Here’s what you’ll need to buy at the minimum:

  • Bodily Injury
  • Property Damage
  • Personal Injury Protection (only required in no-fault states)

Your Lender Will Require Full Coverage

The state is concerned with the damage that you cause to others. If the state didn’t pass compulsory auto insurance laws, there would be no way to ensure that people could pay for their repairs and their medical treatment after they were a victim in a car accident.

While liability insurance is necessary, you need more than just that if you have an auto loan.

One of the terms that you agree to when you take out your auto loan is that you’ll buy full coverage on the car. Full coverage consists of comprehensive and collision coverage and it protects the property that’s listed on the policy if it’s damaged.

Can you choose any deductible for your physical damage coverage?

You have to have comprehensive and collision at all times but you also have to comply with the deductible rules.

The deductible is the amount that has to be subtracted from your claim when it’s paid. Since carrying a high deductible can be a risk to the lender, it’s common for the loan contract to say that your deductible must be $500 or lower.

When you’re buying a car at a dealership, you have to budget for the monthly car payment and also insurance expenses. Don’t overlook how much insurance premiums can cost you over the span of a year.

To find more affordable options, you can get online quotes from several companies at once. Use an online quote tool, enter your zip, and start comparing the premiums for various limits of liability coverage right this very minute.

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