Title loans usually require collateral, including your vehicle and, often, car insurance. Lenders require insurance on the vehicle because if it’s totaled or stolen with no coverage in place, their collateral disappears. If you don’t have car insurance, it poses a significant risk to the lender, and failing to have insurance could violate the loan agreement terms or be illegal in your jurisdiction.

It’s possible to get a loan on an uninsured car, but it’s harder to find a lender who will work with you. Not only that, but your odds of getting a favorable interest rate or repayment term are far lower than if you have full insurance coverage on the vehicle. These loans already carry more risk for lenders than traditional loans because they don’t require excellent credit and involve higher loan amounts. Add another variable, such as not having collision coverage on the vehicle, and it becomes more challenging to get approved for a title loan.

How Car Insurance Works In The Context Of A Title Loan

When you insure a vehicle, a contract is created between you and your insurance company. You pay a premium; in return, an insurer provides financial protection against certain types of damage, vehicle loss, or liability if you’re responsible for injuries or damages to others.

Car insurance can include the following types of coverage:

• Liability coverage covers you if you’re in an accident and you cause damage or injuries to someone else.
• Collision coverage covers vehicle damage if you hit a car or another object.
• Comprehensive coverage covers vehicle damage caused by something other than a collision, such as theft or vandalism.
• Uninsured/underinsured motorist coverage covers expenses you might incur if you’re in an accident caused by someone without insurance or with insufficient coverage to cover all damages.
• Personal injury protection, also known as no-fault coverage, covers medical expenses and other costs stemming from an accident, regardless of who was at fault.

You pay your premium monthly, quarterly, semi-annually, or annually, and the amount is based on factors such as your driving record, location, and age.

You can file a claim with your insurer if you are in an accident or your vehicle sustains damage. At that point, they will evaluate your claim, and if it’s approved, they’ll either pay for repairs directly to a shop or reimburse you for the costs minus your deductible.

Your insurance coverage usually applies for a set period, such as 6 months or a year. You’ll have the option to renew your policy before it expires.

Do You Need Insurance Coverage On Your Vehicle To Get A Title Loan?

Whether insurance is required depends on the lender, but most require it because the vehicle’s insured value protects their collateral. If you use your vehicle as collateral, the lender has a financial interest until the loan is paid in full. While there can be exceptions, a lender generally does not want to be left “holding the bag” if you take out a title loan with them, wreck the car, and don’t have insurance. These loans are already tough to qualify for, so it makes sense to take the time to get full coverage for the vehicle.

If your vehicle were to be damaged, insurance would reassure the lender that their investment is protected. Many states also require vehicles to be insured. Lenders might need insurance to protect themselves legally and comply with relevant laws.

Some lenders offering title loans online will outline specific requirements for borrowers, including maintaining coverage throughout the loan term.

Additionally, if a vehicle is damaged and there is no insurance, its value can diminish. That leaves a lender with a less valuable asset if they need to repossess and sell it to recoup their losses if the borrower defaults on the loan.

If You Don’t Have Insurance, How Can You Get A Vehicle-Secured Loan?

While it is uncommon and not permitted in some states, in others, you may be able to get a vehicle-secured loan without insurance.

You would have to find a lender willing to work with you. Some lenders have flexible requirements, and others might specialize in working with borrowers without insurance.

Another option is to ask prospective lenders which companies most commonly insure vehicles used for title loans. While it may be difficult to obtain insurance through a typical agency, some firms specialize in coverage for people with poor credit or a history of accidents.

Qualified borrowers in this situation should ask lenders directly about their minimum coverage requirements before applying.

What Happens To Your Loan If You Get In An Accident

If you get into an accident, your vehicle has a title loan on it, and you also have insurance, the payout process can depend on your loan agreement, the extent of the damage, and your insurance coverage.

Generally, if you’re at fault in an accident, your liability insurance covers damage to the other party’s vehicle and any injuries they have. Liability coverage is separate from your loan agreement and, in most places, is legally required.

After an accident, you file a claim, and the insurance company investigates. If your insurer approves your claim, it will pay you directly or send the funds to a repair shop.

Since your vehicle is used as collateral for your loan, your lender may require you to handle insurance matters in a specific way. Some lenders may require you to use the payout to repair the vehicle, while others may not.

Contact your lender after any accident. They may have specific requirements for how insurance proceeds are applied, especially if the vehicle is a total loss. Depending on the extent of the damage and payout, you’re still likely to be responsible for paying off your loan, even if your vehicle is damaged or totaled.

Key Takeaways: Insurance And Title Loans

While getting a title loan without insurance is technically possible, it’s not common. Insurance protects the lender’s collateral, which is why it’s often required.

If you want to review your lending options, complete the Premier Title Loans application online or call us at 800-250-6279.

Jessica Chase

Jessica has been working in the title loan lending industry since 2012. Before that, she managed a team of customer service representatives for one of the largest payday loan companies in the US. Since coming to Premier Title Loans, she’s overseen our sales and marketing department and looks forward to educating consumers on their different financing options. Jessica is always open to feedback and questions related to short term loans!