Do You Have To Have Full Coverage on a Financed Car?

If you’ve bought a car – that’s great, but know it’s just the beginning. Imagine having a conditional $800 loan for the car and getting into an accident. Consider what happens if you crash a financed car without insurance. You’ll be facing vehicle repairs, loan payments, and possibly medical expenses. To save yourself, you are required to have insurance for a financed car.

Do financed cars need full coverage? Can you have liability insurance on a financed car? We’ll cover this and more in the article.

What Is Full Coverage Car Insurance?

Full coverage auto insurance is a term commonly used to describe a comprehensive auto insurance policy that provides broad coverage for various events and damages. While there isn’t a specific type of insurance officially named “full coverage,” it typically includes liability, collision, and comprehensive insurance.

In reality, insurance with full coverage doesn’t exist. The term “full coverage car insurance” usually refers to coverage that includes multiple types.

Full insurance for financed car is expensive but comes with several advantages:

  • Significant cost savings in the event of an unforeseen incident
  • Relief from the hassle of finding, organizing repairs, or towing your car
  • Often exempt from paying for the medical treatment of the injured parties

If you are still contemplating the question, “Do I need full coverage on a financed car?” familiarize yourself with the key scenarios it applies to:

  • Theft of the car from any storage location, including a garage or parking lot
  • Involvement in a road traffic accident
  • Damage to the car caused by third parties
  • Damage from natural disasters – hurricanes, tornadoes, floods, etc.

While full insurance doesn’t guarantee one hundred percent safety, it’s indeed a good option for maximum protection against significant losses.

Cost of Full Coverage Insurance for Financed Car

In 2023, the average annual cost of full auto insurance is $2,150, though this amount can vary due to different factors.


Young drivers, due to limited driving experience, may pay twice as much as individuals aged 25-70.


Men are more likely to be involved in road accidents as they tend to engage in riskier behavior behind the wheel. Therefore, some companies may charge them a higher amount for insurance.


The cheapest insurance on financed cars will be for residents of the northeastern states, where the average price is 43% lower than in the rest of the states. Meanwhile, the highest prices are in Florida, New York, and Louisiana.

Why Does a Financed Car Need Full Coverage?

A financed car technically belongs to the lender until the loan is fully repaid. By requiring you to have full coverage in addition to minimum insurance, lenders protect their investment in case the car is damaged. It serves as a safety cushion for them. Various types of insurance (discussed later) ensure the lender can recover the car’s value.

If you cannot afford minimum full coverage for financed car, you can explore special programs in your state or reach out to non-profit organizations that assist in obtaining auto insurance, even with a poor credit rating.

What Happens if You Don’t Have Full Coverage on a Financed Car?

Do you need full coverage on a used financed car? If you’re still undecided, familiarize yourself with the consequences awaiting you without insurance.

All states, except New Hampshire and Virginia, require drivers to have minimum coverage for financed cars. The ability to drive, for example, in Texas or California, doesn’t have such strict requirements. However, if you experience an accident, you’ll be forced to pay a fine, confirm your right to drive with a license or receive an administrative violation (depending on the situation). Additionally, the creditor may:

  1. Refuse to extend the credit agreement. This means you’ll have to buy the car from the creditor or find another.
  2. Demand a buyback of the car. Then, you’ll have to pay the car’s full value, even if the entire loan amount hasn’t been paid.
  3. Go to court. The goal is to obtain compensation for the damage caused by the accident (if you are at fault).

Therefore, the absence of insurance for financed cars can have serious financial and legal consequences.

Types of Full Coverage Insurance

Now that you know what happens if you wreck a financed car without insurance, let’s discuss its types.

Liability Insurance

Can I get liability insurance on a financed car? This is the most popular inquiry among drivers since, in most states, this coverage is mandatory. It covers costs for bodily and property damage to another person, paid by the insurer within the coverage limit.

Collision Insurance

When purchasing collision coverage for accidents with another car, a tree, or a pole, you choose an insurance amount corresponding to the vehicle’s value. All expenses are also covered by the insurer.

Comprehensive Insurance

It combines two or more types of insurance and is documented voluntarily or at the creditor’s request.

Medical Payments Coverage

It covers medical expenses, such as doctor consultations and medications, for you or passengers in the insured car during an accident. It is mandatory only in some states.

Injury Protection

Similar to the previous type of insurance, it covers more expenses, including childcare, lost wages, or burial costs.

Uninsured Motorist Coverage

If an uninsured driver hits you, you may face financial difficulties. In such cases, this coverage helps obtain compensation for medical expenses (UM) and the repair or replacement of your car (UIM). It is not mandatory in all states.

Financed Car Insurance Requirements

Before signing an insurance contract, carefully study its terms. If you have doubts, you can consult with a lawyer or CoverExplore experts.

To avoid problems, adhere to the following insurance requirements for financed cars:

  • Don’t delay getting insurance for financed car. Do it within 30 days of use.
  • According to bank requirements and legislation, document at least liability insurance, full coverage, and sometimes gap insurance.
  • Pay credit payments and insurance contributions on time.
  • Don’t sell, lease, or mortgage the vehicle without the creditor’s prior written consent.
  • Report any changes related to the car—damage, loss, theft, change of residence, etc.

Note that financed car insurance requirements vary depending on the bank and contract.

Key Conclusions

Do you need full coverage on a financed car? Yes! Ensure comprehensive insurance coverage to protect the lender’s investment in case of an accident resulting in total loss, theft, etc., where you may be unable to make monthly payments. If you don’t have an insurance policy, the lender may impose forced insurance, which can be much more expensive.

Most lenders require proof of full insurance before you can drive off the dealership lot with a new car. They will also verify that you maintain full insurance throughout the loan term.

Now, armed with all the information, ask yourself, “Is full coverage required on financed cars?” and you will know the exact answer.

Frequently Asked Questions

Is insurance more expensive for a financed car? 

In most cases, the price does not differ. This is because insurance companies consider not only whether the car is subject to a loan but also factors such as your age, gender, state, driving experience, credit rating, and more.

Is there car on finance with free insurance?

Yes, car on finance contracts with free insurance are possible through Personal Contract Purchase. Learn more about this by contacting the experts at CoverExplore.

Can I have liability insurance on a financed car?

Not only can you get liability insurance on a financed car, but according to the laws of most states, you are required to have at least a minimum level of this type of insurance.

Victoria Berezhetska

Victoria Berezhetska is a Content Lead at and an expert contributor to CoverExplore. She has a Bachelor of Science degree in Business Administration, with extensive working experience as a PR specialist and content writer. At CoverExplore, she helps customers find the right educational material through easily digestible blog posts and buying guides backing their insurance coverage choice. Victoria covers diverse topics around digital and insurance marketing, including auto, home, health, and life insurance.


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