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Can You Finance a Car Without Full Coverage?

Every reputable lender in the United States requires that you carry full coverage insurance on any financed vehicle. If you drop coverage during the duration of a loan, many lenders will buy insurance for you and roll the premiums into the loan. Others will repossess the vehicle if you do not carry the required insurance. So, to answer the question posed in the title of this article:  no, you cannot a finance a car without full coverage insurance.

Why is Full Coverage so Important to Lenders?

Even if a lender did not require the coverage, it would make sense to have it. If a vehicle is totaled in an accident, you still own any loan balance remaining on it. This “deficiency balance” could be several thousand dollars, depending on whether and to what extent you have negative equity in the vehicle. If you don’t have the cash to pay this balance, you would be left with only two real options:  one would be to finance another car and carry over the old balance (bad idea), or stop paying for the wrecked vehicle and wait for the thing to be repossessed, destroying your credit. Even if the vehicle is repossessed, the lenders can obtain a judgment from the courts for the remaining balances, allowing them in many states to garnish your wages.

Knowing that those are the only two options open to you, lenders cut their risk of having to repossess vehicles by requiring financed vehicles to be fully insured at all times. This is an important consideration if you are financing a car for the first time. Full coverage is significantly more expensive than basic liability coverage, so you must factor this into your vehicle budget.

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