Yes, you need full coverage auto insurance for a subprime auto loan. Here’s what full coverage typically entails, why you need it, and how to look for subprime financing options.
Full Coverage and Subprime Financing
Your auto lender is actually the one that requires you to have full coverage car insurance for your financed vehicle. In nearly every case, a subprime lender is going to require you to fully insure your car until you pay off the loan.
Once it's paid off, you own the vehicle and can choose the minimum insurance coverage required by your state, since you’re no longer obligated to insure the vehicle according to your lender’s stipulations.
Full coverage typically includes:
- Liability insurance – Covers property damage and medical bills of injured parties if you’re at fault in a motor accident. Required in nearly every state, regardless if you’re financing or own the vehicle.
- Collision insurance – Covers cars that are damaged in an accident, no matter who was at fault. Typically covers repairs up to the value of your vehicle at the time of the accident. Carries a deductible.
- Comprehensive insurance – Covers damage to your car resulting from non-motor vehicle accidents such as hail damage, theft, fire, or animal strike. Carries a deductible.
When you’re shopping for full coverage auto insurance rates, the insurance agent is very likely to know what coverage you need when you’re financing. If you know what subprime lender you’re financing with, you can ask them the minimum insurance requirements before you choose a policy.
When you’re about to finance a vehicle, it’s a good idea to start shopping for not only different vehicles but also insurance rates! Most dealerships require proof of auto insurance before you can drive a car off the lot, as well, so it’s a good idea to get a couple of quotes before you take delivery of a vehicle.
Why Do Subprime Lenders Require Full Coverage?
Subprime lenders, and other auto lenders, require full coverage auto insurance because they want the vehicle covered to the fullest extent over the life of the car loan. Since the vehicle is the lender’s until you pay everything off, they want you to protect the value of the car.
If you don’t get full coverage car insurance while you’re financing, it could lead to repossession, since you’re breaking the lender’s contract stipulations. Lenders can also issue you force-placed insurance. These auto insurance policies are placed on a financed vehicle if you don’t have adequate coverage or if your insurance lapses.
It’s also important to remember that your insurance premium is impacted by the age and condition of your vehicle. Typically, newer cars are more expensive to insure – because they have more expensive parts that need to be replaced if something happens. Whether or not your car has safety features, such as a backup camera, can influence your insurance costs, too. In some states, your credit score has a say in your insurance cost, and the area that you live in can raise or lower insurance premiums.
With all these different factors in play, be sure to shop around with multiple insurance companies before you settle with a policy.
Applying for a Subprime Car Loan
Once you know what insurance coverage you need for a subprime auto loan, you can start the search for a lender!
Subprime lenders are signed up with special finance dealerships. You apply for vehicle financing with the special finance manager, who passes along your application and documents to their lending partners. If you qualify for financing, the subprime lender sends a payment call, which is the maximum car payment you qualify for. From there, you choose a vehicle that meets your eligibility and fits your needs as a driver. And before you can take delivery, make sure to have proof of auto insurance that meets the lender’s stipulations.
Find a Dealership to Work With
Finding a dealer that’s signed up with subprime lenders isn’t always easy, since many dealerships don’t advertise their lending partners. However, here at Auto Credit Express, we’ve located special finance dealerships all over the country and we want to guide you to one in your local area.
Start right now by filling out our free auto loan request form, and we’ll get right to work looking for a dealer that assists bad credit borrowers.