Can Your Car Be Repossessed Because You Don't Have Insurance?

Your Loan Contract

Review your loan contract. Reasons for repossession are stated within your paperwork. Many lenders do require a full coverage policy on vehicles with active loans, but repercussions often include adding an insurance policy to your vehicle's loan instead of repossession. Otherwise, your insurance provider must notify your lien holder of policy cancellation, in which case the lender can pursue repossession. Your lender may try to contact you first, but it does not have to if the contract clearly states otherwise.

Your lender may contact you if it hasn't received notification of an active insurance policy or if your insurance company fails to properly update your lender of your policy renewal. Call your lender or respond to any correspondence to correct the insurance matter. If you plan to purchase another policy, let your lender know immediately. If you are maintaining a full coverage policy on your vehicle, provide proof of insurance to your lender to stop the repossession process.

Instead of repossession, your lender may add an insurance policy to your loan, which increases your monthly payment. Check your contract over to determine if your lender will pursue its own insurance policy. If so, your vehicle will not be repossessed, but expect your car payment to increase. Insurance policies obtained by lenders are not cost competitive; most policies are short term and exceed $1,000. An individual policy is lower priced. Additionally, if you do not pay your new car payment amount, late payments are reported to the credit bureaus, which affect your credit standing.

Do not let your insurance lapse. State rules vary, but many require active insurance policies for registered vehicles. Unless you turn in your license plates, you may also face fines or license suspension from your state's motor vehicle department. Your insurance company must also notify your state if your insurance lapses or cancels. If you do want to take your vehicle off the road, you may be able to purchase a comprehensive policy if your lender allows it. A comprehensive policy is cheaper than full-coverage insurance and may allow you to save money until you can afford proper insurance coverage again.