Certain individuals have encountered what is known as a car insurance lien holder when they buy a new vehicle and are required to get a quality insurance policy until they pay off their auto loan. Whenever you purchase a new vehicle, you should already know that you need insurance. Well, if you haven’t already paid off your vehicle in full, your lender will require you to get insurance that is up to their standards so that any damages will be financially accounted for. Most people know that a lien is basically considered security interest for part of a contract to ensure payments from one party. When it comes to car insurance, the concept can be a little bit different and somewhat confusing, so we will try to break it down in as simple of terms as possible for anyone reading.
Auto liens 101: Taking out a loan
First off, it is important to understand how a lien could be placed against your automobile. An auto lien is when you fail to pay off your end of the contract or loan, the lien holder can essentially notify you that they will take away your vehicle. In most general terms, people can have liens placed against their property (i.e. house) if the financial implications are high.
When a person purchases a new car, either they have enough money to pay it off in full or you take out a loan. Whenever you take out a loan, you run the risk of having to deal with a lien. People that take out loans must continue to make the monthly payments towards their loans with the agreed interest rate as stated in their contractual agreement with the bank or credit union.
Failing to pay back loans results in a lien
If you do not pay back your loan on time, the company that is lending you money (whether it’s a bank, credit union, etc.) will repossess your property by placing a lien on your vehicle. Since you do not currently have enough funding to pay off your vehicle in full, you need some financial support. If anything would happen to your car, the entity that is lending you money knows that you wouldn’t have enough to pay off the damages in full. So in turn, they require that you continue making your payments on time as well as that you buy the appropriate amount of insurance.
What is a car insurance lien holder?
A car insurance lien holder is put in place to make sure that you purchase an adequate insurance policy when you do not fully own your vehicle. They will generally mandate that you purchase both fully comprehensive insurance as well as collision coverage. Although your insurance premiums may be fairly high, it is essential that you purchase a quality policy when you are not yet the full owner of your new vehicle.
If you do not buy the appropriate amount of insurance, the lien holder will notify you that a lien is in order – and they will send you the paperwork. From the date that you receive the paperwork, you will have a set number of days to resolve the problem. Either you start making payments soon, or the bank will come and take away your vehicle. Payments will be required for both an insurance policy as well as towards your vehicle.
Always stay up to date with payments
Even though it may seem like it is completely unfair to have to deal with a lien, looking at the situation from the perspective of a lender giving you money may change your perception of the situation. Whenever you have to deal with the lien, it is important to take full financial responsibility and try to come up with the money to pay for the interest on your loan as well as the appropriate amount of insurance.
For new and leased cars, you will want to make sure that you buy what is called “gap car insurance” – which is likely a type of coverage that is required by your lender. If you want to get a quote on a comprehensive policy as well as gap coverage, be sure to use the zip code tool at the top of the page for a free comparison. All you have to do is enter your zip code and the leading insurance companies in your area will give you free quotes. Getting a good deal on your insurance policy is very smart if you want to have extra money in case you ever have to deal with a lien!