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Paying for and maintaining a vehicle is expensive. If you’re financing a vehicle on a tight budget, you may wonder whether you can drive it without auto insurance. In short, we don’t recommend having no insurance on a financed car.

In this article, we’ll explain the insurance requirements that keep your financed vehicle secure and what you can do if you can’t afford your insurance premium. We’ll also recommend two providers from our review of the best car insurance companies.

Key Points:

  • If you have a financed car, your lender will likely require you to carry full-coverage insurance.
  • Rather than dropping your insurance coverage, consider refinancing your auto loan to save money.
  • If your insurance lapses or you cancel it, your lender can put force-placed insurance on your financed vehicle.


Do You Have To Buy Insurance On A Financed Car?

The short answer is yes, financed cars have to be insured. Until your financed car is paid off, your lienholder owns the car, and it determines what level of insurance coverage is needed for you to drive the vehicle.

What does that mean for you?

Lienholders typically require full-coverage vehicle insurance, including collision coverage, comprehensive coverage, and liability coverage. Here’s a look at each of these types of auto insurance, along with other coverage your state may require:

  • Liability auto insurance: Liability insurance takes care of the other driver’s property damage and medical expenses for them and their passengers if you’re found at fault in an accident.
  • Collision insurance: Collision insurance covers repairs or replacement for your vehicle after a crash with another car or a stationary object.
  • Comprehensive car insurance: Comprehensive insurance repairs or replaces your car if it’s stolen or damaged by a non-collision event like a natural disaster or vandalism.
  • Medical payments coverage: MedPay helps cover medical bills and funeral expenses for you and your passengers after an accident, regardless of who’s at fault.
  • Personal injury protection: PIP insurance, also called no-fault insurance, helps pay medical expenses, funeral expenses, and lost wages for you and your passengers after an accident, no matter who’s at fault.
  • Uninsured/underinsured motorist coverage: UM/UIM coverage helps pay for your repair costs and medical bills for you and your passengers if you’ve been hit by a driver with no insurance or not enough insurance.

Some lenders also require you to have gap insurance. This covers the difference between what you owe on your auto loan and the actual cash value of your car in the case of a total loss.


What Happens If You Don't Insure A Financed Car?

If your lienholder requires full-coverage insurance and you don’t purchase it, you violate your contract. The lienholder can legally cancel your auto loan and take back its vehicle through repossession if the company finds you driving with no insurance on a financed car.

If the lienholder learns you’re driving uninsured, the company can put force-placed insurance on your account. That’s not a good thing.

Force-placed insurance is coverage the lienholder buys on your behalf. The lender tacks the cost of this insurance on to your monthly auto loan payment. The premiums for force-placed insurance can be very high. In addition, force-placed insurance is designed to protect your car loan provider, not you.

Additionally, it’s illegal in most states to drive without car insurance. If you’re caught driving without insurance, you could be forced to pay fines, your driver’s license may be revoked, and you may even face jail time.


How Much Does Insurance Cost On A Financed Car?

Since a financed car usually requires full-coverage auto insurance, the insurance cost can be relatively pricey. The table below shows the average annual and monthly costs of full-coverage car insurance for a married 35-year-old driver with good credit and a clean driving record. The national average for a full-coverage auto insurance policy is $1,730 per year or $144 per month.


Insurance ProviderAverage Annual CostAverage Monthly Cost
USAA$1,054 $88
Erie Insurance$1,238 $103
Nationwide$1,281 $107
Country Financial$1,295 $108
Geico$1,308 $109
Auto-Owners Insurance$1,337 $111
State Farm$1,481 $123
American Family Insurance$1,537 $128
Progressive$1,611 $134
Travelers$1,669 $139

As with all types of car insurance, higher deductibles are associated with lower premiums.

So if you’d like a lower premium and you’re confident you could afford to pay more out of pocket if you had to file a claim, consider asking your car insurance provider to raise your deductible.


What If I Can’t Afford Insurance?

Whether or not you feel like you can afford auto insurance, you need to have it to drive the car you’re financing or planning to finance.

Below are five tips to lower your car insurance rate or start saving money for insurance.

  1. Get insurance quotes from multiple providers to find cheap auto coverage.
  2. Refinance your car for a longer term to lower your monthly car payment.
  3. Create a budget and cut any unnecessary or excessive expenses.
  4. Ask your auto insurance company about savings you may qualify for, such as good driver and bundling discounts.
  5. Work to improve your credit score over time, as credit affects insurance rates in most states.


No Insurance On A Financed Car: Conclusion

It’s just not worth it to drive with no insurance on a financed car. Forty-eight states require some form of car insurance, and your contract with your lender likely requires you to have a full-coverage policy. To reduce the cost of car insurance, ask your insurance agent about discounts and consider raising your deductible.

Recommendations For Auto Insurance Providers

Our review team analyzed the top providers in the industry and compiled a list of the best auto insurance companies. Our research found that Geico and USAA are two providers that offer affordable full-coverage car insurance.

Geico: Best For Discounts

Geico is the second largest insurance company in the United States. The company has a great reputation thanks to its below-average rates and high policy limits. Geico offers the six standard types of coverage, so you’ll be able to meet your state’s minimum coverage requirements or purchase a full-coverage policy without hassle. The insurer also has 16 discounts available, including savings for good drivers, good students, federal employees, and members of the military.

USAA: Best for Military Members

USAA car insurance is an outstanding option for full coverage, though it’s only available to members of the military, veterans, and their spouses and children. Our industry-wide review found that, on average, USAA offers some of the cheapest rates available. In addition to full coverage, the company offers options such as ride-share insurance, classic car insurance, and rental reimbursement.


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No Insurance On A Financed Car: FAQ

How We Rate Insurers

Our review process aims to deliver consistent and unbiased assessments of car insurance providers. While there are multiple qualities that make a car insurance company successful, our review team focuses on those we believe are the most important for consumers:

  • Cost: Cost can be difficult to compare between insurers because so many factors impact annual premiums. The cheapest insurer for one driver may not be the cheapest for another. To determine our cost score, we look at insurance rate estimates generated by Quadrant Information Services, discount opportunities, and consumer reports.
  • Coverage: To determine our coverage score, we look at the number of coverage options available as well as coverage limits and deductible options. Our ratings also take into account additional services and benefits like roadside assistance.
  • Reliability: It’s important that an auto insurer is able to meet its claims obligations. Companies with a strong financial strength rating from AM Best score best in this category. Established insurers with a long history of reliable service also receive positive marks.
  • Service: We comb through customer reviews on sites like the Better Business Bureau (BBB) to learn about customer experiences. Insurers with a low volume of complaints score well in this area. We also consider the claims process, giving higher ratings to car insurance providers that offer easy-to-use claims apps.

*Data accurate at time of publication.