What A Lien Holder Is On Your Car Insurance Policy

One of the most common ways to purchase a new car is to use the financing options available through a car dealership or bank. Depending on the time of year and the type of car being purchased, consumers can find options such as cash back, extra accessories, or zero percent interest for the length of their car repayment term. This often seems like, and is, an excellent way for new car owners to avoid having to pay out a massive initial sum, but still avoid high interest rates. What many consumers fail to realize, however, is that this places the financing company, be it the dealership or the bank, in the position of being the lien holder on your vehicle, as well as on your insurance policy.

Initially, what this means is that any car insurance quotes you receive will list both your and your lien holder on any policy agreement. In many cases, your pink liability card will list not only your name but the name of your financing company as well. This is because, on paper, the financing company owns your new car. They allow you to drive and insure it under the terms of your agreement with them, but they are the actual owners until the car is fully paid off. This can have several important effects on both an owner and their car insurance. First, the financing company can mandate what type of insurance they want to see on the vehicle. This is a written agreement that will be drafted before you purchase the vehicle and is usually limited to comprehensive coverage. If the lien holder discovers that you do not have the proper insurance on your vehicle, they can force the coverage provider of their choosing on you, and this can mean sky-high premiums. Once you have obtained the right coverage, this forced insurance can be dropped.

As well, although the company owns the vehicle, you will be responsible for all damages. The insurance policy will be in your name, and any deductibles, repairs, or maintenance will be your responsibility. However, should the car be destroyed in an accident, the lien holder will expect full payment of their loan to you, even if the insurance company pays out less than the car is worth. A car which has been written off but only has a $10,000 value and $20,000 still owing can be a nightmare for a consumer.

Understanding the relationship between your financing company, any car insurance quotes you receive and you as the driver of the vehicle is essential since they, as the lien holders, effectively own your car until it is fully paid off, and have more control over it than many consumers realize.

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