Subprime lenders require a minimum full coverage car insurance policy but that may not be enough for many credit challenged borrowers

Navigating Car Insurance with Poor Credit

Auto Insurance Coverage with Poor Credit

In our experience here at Auto Credit Express, we've found that one of the keys to successfully completing a subprime auto loan is to keep the total monthly car budget as affordable as possible.

This means financing a subcompact, compact or, at most, mid-size vehicle. In addition to a more affordable payment, these kinds of vehicles are typically more affordable to insure, because auto insurance can be an issue since these vehicles must have full coverage auto insurance.

But just because a full coverage policy meets the lender's requirements doesn't necessarily mean it's enough coverage for the borrower.

Full Coverage Car Insurance

As we've stated in past articles, in addition to bodily injury and property damage liability coverage, if a vehicle is being financed or leased, all lenders will require borrowers to purchase collision as well as comprehensive damage coverage.

Both those additional requirements come with different deductible options (the amount the insured pays before coverage from the insurer kicks in).

But what about the dollar amount of liability coverage? Does that even matter?

Auto Insurance Liability Coverage

In fact, it does matter, especially if you're concerned about your assets being seized or your wages garnished.

Here's why:

Michigan's minimum automobile insurance liability coverage, for example, is 20/40/10. That translates to $20,000 maximum bodily injury per person per accident, $40,000 maximum bodily injury per accident and $10,000 maximum property damage per accident.

This means that if you're involved in an auto accident, the insurance company will pay up to those amounts. The problem is, if the damages go beyond those amounts, the owner of the vehicle (the policyholder) can be taken to court and held responsible for any remaining damages (most states have similar minimum requirements).

In a worst case scenario, the policyholder's home could be seized and/or wages garnished to satisfy a judgment by the court – not a good thing, especially if that driver has bad credit and is in the process of rebuilding it with a subprime car loan.

But there is a light at the end of the tunnel, and it's not the headlight of an oncoming freight train.

According to the web site, purchasing additional liability coverage above the required minimums is generally very affordable. In fact, most policyholders will pay only a fraction as much for an additional $50,000 of coverage as they did for the first $25,000. also noted that if you're thinking of making changes in coverage, you might want to shop around as you might save even more by switching insurers.

The Bottom Line

If you have problem credit, it's important to realize that taking out a subprime auto loan (or any auto loan, for that matter) will require that you buy full coverage auto insurance. And while it's important that you get the right deductibles for both collision and comprehensive coverage, it's also necessary that you have enough liability coverage, as well.