When getting a loan for a car there are always some strings attached to protect the banks investment. If you receive any information about taking out a loan for a car, you will probably find out that it is required to have specific minimums on your auto insurance. That will usually include required collision insurance on the vehicle, so you are able to repair the car if anything were to happen to it. If the bank did not require you to have collision insurance and your car was wrecked, then the bank would have no physical possession to secure their investment if you stopped making payments.

If you think that the bank can’t make you purchase insurance you don’t want, your wrong. You have to remember that it is the banks money, and they can do as then please with it. If you don’t want to follow their rules and standards, they will find someone else to loan money to with a lower risk of loss.

The main reason that banks require you to have more  insurance coverage on a loan purchased vehicle, is because if you fail to make payments, they will always have a physical possession to take back. Without the insurance, if you wrecked the car and failed to make payments, the bank would have nothing to take back to protect their investment, so they would be at a great loss.

If you did fail to make your payments on the loan, the bank would repossess the car and then auction it to recover some of their investment. They would probably not auction the car until you were notified and given a time limit to become current on payments, or you may also have the option to refinance your loan. If you did not pay up with the loan after a set time limit, they would then auction the car probably at a loss to its actual value. Your credit score would drastically get worse, your chances of getting a loan in the future would decrease, and you would still be required to pay the remainder of the loan after the auction price has been subtracted.

With a leased car, it works about the same as far as insurance requirements. On a leased vehicle, collision insurance is almost always a requirement. When a car is leased, you never actually own the car, it is more like you are paying to borrow it for a set period of time. So if it is not actually your car, the leaser can require you to get more coverage to protect their property. If you are considering taking out a loan for a car or leasing a car, know that you will be required to get more insurance coverage than you may like.