The Role of Car Insurance in Title Loans
A title loan is an easy way to access financial aid if you do not qualify for long-term personal or payday loans. It uses part of your car’s worth as collateral without selling it. Unfortunately, some lenders may ask for proof of insurance as a security to be eligible for an auto-title loan. Hence, here is why having car insurance is essential when securing a title loan.
It Protects the Lender’s Investment
The amount of loan you qualify for with a car title depends on the title value. That means lenders will use the current title value to estimate how much loan you are eligible for. When the value of the title decreases because of natural incidences or the vehicle is damaged in an accident, your lender will not have anything to claim against you or repose from the vehicle. That is where car insurance comes in to protect their interest.
You can get a title loan without proof of insurance from some lenders. However, they risk losing their investment if you default on repaying it. In this case, a lender may require you to have comprehensive or collision coverage to safeguard their money during a natural disaster. Comprehensive and collision coverages ensure the car retains its value regardless of the event. A lender may also ask you to name them a “loss payee” on the insurance policy, which guarantees compensation in case of a total loss.
It Safeguards Your Assets
Losing a car in an accident, theft, or natural disaster is challenging. Hence, having insurance safeguards your assets against financial loss. For instance, car insurance covers all the car’s repairs or replacement, preserving its title value. Knowing that your insurance policy will compensate the lender no matter the incident gives you peace of mind.
Car insurance also reduces out-of-pocket costs of maintaining the car during the loan term. If the policy lapses during the loan term, you may need to pay maintenance costs to keep the vehicle at its best value, or a lender may purchase forced-place insurance, which is often expensive and less comprehensive. Therefore, keeping an active insurance policy during the loan term reduces your responsibility as a borrower while protecting your assets.
It Fufills Legal and Financial Requirements
Many states need vehicles used as collateral for auto-title loans to have specific types of insurance policies. These title loan requirements ensure the lender and borrowers comply with state lending laws and protect both parties’ financial interests.
While you can still get a title loan without car insurance, the loan often has higher borrowing costs, such as origination fees, interest rates, and rollover fees. Borrowers without proof of insurance also qualify for a lower amount, unlike insured borrowers eligible for amounts higher than $5,000. Therefore, while the type of coverage determines the amount you qualify for and state requirements, having title insurance gives you more financial advantages than borrowers without.
Final Thoughts
Car insurance is a crucial item in your title loan application. Besides protecting the lender’s investment, it allows you to repay the loan conveniently as you drive your car. It also protects your assets by ensuring the lender works with the state’s lending laws. Therefore, if you are considering taking a title loan, reviewing your insurance policy to know how much you qualify for and ensure it meets the lender’s and state’s criteria is recommended.
