Vehicle repossession is a situation no car owner wants to face. If your car has been repossessed, you’re likely dealing with a lot of questions, and one major concern often revolves around car insurance. Does a repo affect your car insurance rates? What happens to your policy when your vehicle is repossessed? Understanding the relationship between repossession and your auto insurance is crucial. Here’s what you should be aware of.
Why Full Coverage Insurance is Usually Required
When you finance or lease a vehicle, you typically don’t have full ownership until the loan is completely paid off. Lenders, therefore, require you to carry comprehensive and collision coverage, often referred to as “full coverage” car insurance. This protects their investment in the car. If you fall behind on car payments, the lender has the right to repossess the vehicle to mitigate their financial losses. If you were to lapse on your required full coverage, the lender might force-place their own insurance on the vehicle, which is usually more expensive and the cost of which is passed directly to you.
Maintaining Car Insurance During Repossession
It’s generally advisable to maintain your car insurance policy even after your vehicle has been repossessed, at least until the situation is fully resolved and the vehicle is no longer in your possession or responsibility. While it might seem counterintuitive since you no longer have the car readily available, maintaining your own policy gives you control. If you cancel your insurance immediately upon repossession, you risk the lender potentially applying their own, likely more costly, insurance to the vehicle while it is still legally considered yours until sold. Keeping your policy active can provide a degree of protection and potentially be more financially sound in the short term.
The Indirect Impact of Repossession on Insurance Premiums
It’s important to clarify that a vehicle repossession itself is not an insurance claim. Repossession is a financial matter between you and your lender, not a liability event that involves your insurance company directly. Therefore, repossession, in and of itself, will not directly cause your car insurance rates to increase. However, repossession has a significant negative impact on your credit score. Insurance companies routinely use credit scores as a factor in determining your risk level and, consequently, your insurance premiums. A lower credit score resulting from a repossession signals a higher risk to insurers, which can lead to increased auto insurance premiums when you seek new coverage or renew your existing policy in the future.
Vehicle repossession is undoubtedly a stressful experience. While it may not directly hike your current insurance rates in the immediate term, the credit score damage associated with it can lead to higher premiums down the road. Navigating car insurance can be complex, especially in challenging financial situations. For personalized advice and to ensure you have the right coverage, it’s always best to consult with car insurance experts who can guide you through your specific circumstances.
