Minimum coverage auto insurance can save you money but if cannot be used when financing a vehicle
Problem Credit and Minimum Car Insurance
At Auto Credit Express we don’t claim to be experts when it comes to auto insurance, but we do know that those minimum coverage car insurance policies being touted on television and the web won’t cut it for credit challenged customers financing a vehicle.
From where we see it, there appears to be a growing list of companies that specialize in providing drivers with the minimum insuring requirements for states in which they market their insurance products. One insurer even declares on their web site that “We Keep You Legal For Less.”
Promises like this might be tempting for credit-challenged car owners on a budget, but can drivers take advantage of offers like this if they’re currently comparing auto insurance and have poor credit?
Quite simply, they can’t.
That’s because if there’s an outstanding balance on a loan, lenders will always require that borrowers have full coverage on their
auto insurance, bad credit or no. For consumers whose previous vehicle was paid off and only covered by personal liability and property
damage coverage, this means adding additional coverage, along with the associated costs, for both collision and comprehensive damage.
This coverage is required because the lender doesn’t want vehicle damage to go unrepaired. It also means that, in the event of a total loss, the lender will be reimbursed for the vehicles current value, less the deductible amount.
After it’s Paid Off
But even after it’s paid off, choosing minimum car insurance for your vehicle is probably not be a good idea because, unless it’s worth just a few hundred dollars, you’ll be losing all the equity if it’s involved in an accident and declared a total loss. Even if it isn’t a write off, you’ll have to pay out of pocket for repairs to at least get it roadworthy.
Then there’s the issue of liability.
Minimum auto insurance policies only include a state’s minimum liability requirements. If you live in Michigan, those amounts are listed as 20/40/10 or, more precisely, $20,000 maximum bodily injury per person, $40,000 maximum bodily injury per accident and $10,000 maximum property damage per accident).
It’s easy to see why these limits could easily be exceeded as well as the reason insurance agents recommend increasing all three coverage limits. In fact, if you’re involved in an accident and those limits are exceeded, you are not only responsible for the rest of the money, you could be taken to court and have your current assets (home, car, etc.) as well as any future assets seized in a judgement against you.
The Bottom Line
Taking out a minimum car insurance policy to save on a bad credit loan could probably save you money in the short term. But at the same time, this type of policy won’t satisfy the requirements of a lender if your vehicle is being financed and, even if your vehicle is paid off, if you have any assets such as a home, taking out this type of policy could end up costing you your current assets plus any in the future, as well.
One more tip: At Auto Credit Express we specialize in helping applicants with damaged credit find those dealers that can give them their best opportunities for auto loan approvals.
So if you’re ready to re-establish your car credit, you can begin now by filling out our online auto loans application.
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