When you apply for a used car loan, you may hear that you have to carry full coverage insurance, the truth is there are three types of insurance you need to carry on the car, which are often just termed as full coverage. The three types of insurance needed to be carried on a car when a loan is involved are liability, comprehensive, and collision.
These types of insurance are mandatory for any car loan whether the car is new or used. Comprehensive insurance will cover the damages due to theft or vandalism to the car whereas collision will cover the damages when a car is involved in a collision. Liability is of course, required by law in most states and will cover damages and injuries to the property of others.
A lending company will ask that all individuals they give a car loan to carry these insurances. The main reason is that if you default on the loan, the lending company will be able to sell the car and recoup the money let you borrow. If you are involved in an accident without insurance and the car, is damaged and is not drivable do you really want to keep paying on a loan for a car you cannot drive. The lending company will also not want a car they cannot sell in order to get the money from the loan you are not going to pay. The sad news is that if the car is totaled, you will still owe the used car loan. Therefore, it would be better to have insurance so the car can be repaired or replaced, you will still be able to drive the car, and the lending company will receive the money you borrowed. This insurance makes everyone involved happy.
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