Insuring a Financed Car: What Your Bank Requires
If you bought your car on finance, your bank requires you to keep comprehensive insurance for the full term of the loan. The car is the bank's security until you have paid it off, so it insists on cover that would repay the outstanding balance if the car is written off or stolen. You can choose your own insurer, but you cannot choose to go without cover.
Why the bank requires it
Until the loan is settled, the bank effectively owns part of your car. Comprehensive cover protects that asset against accident, theft and fire. If your uninsured car was written off, you would still owe the bank the full balance with no car to show for it, which is exactly the situation the requirement prevents.
What is required
- Comprehensive cover for the full loan term, not third-party only.
- The bank noted as an interested party on the policy, so a payout can settle the finance.
- A sum insured that reflects the car's value.
Some banks or dealers may offer their own insurance at signing, but you are usually free to shop around for better value. Our comprehensive car insurance guide explains what comprehensive includes.
Do not forget credit shortfall (gap) cover
A car loses value faster than the loan reduces in the early years, so if it is written off you may owe the bank more than the insurance payout. Credit shortfall or gap cover pays that difference. It is optional, but for a financed car it can save you from paying off a car you no longer have.
What if you cancel your cover?
If you let the insurance lapse, the bank can add its own cover at your expense, usually at a higher cost, or take other action under your agreement. Keeping your own comprehensive policy in force is almost always cheaper and gives you control.
The bottom line
A financed car must carry comprehensive cover until it is paid off, but the insurer is your choice, so compare for the best value and consider gap cover. Get a car insurance quote and compare comprehensive cover for your financed car.
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