Can they repo your car for not having insurance?

Your car can be repossessed by the auto lender or lesser if you break your contract, but most will choose to add insurance costs to the car payments instead.

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Laura Adams is one of the nation’s leading finance, insurance, and small business authorities. As an award-winning author, spokesperson, and host of the top-rated Money Girl podcast since 2008, millions of readers, listeners, and loyal fans benefit from her practical advice. As a professional accountant and financial analyst for several companies, Laura is a trusted source on various financ...

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Written by Laura D. Adams
Insurance & Finance Analyst Laura D. Adams

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: May 26, 2022

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Things to remember...

  • A lender or lessor can legally take your car when you aren’t complying with your finance or lease contract
  • When a car is repossessed, the bank or lessor will seize the car until you’ve fulfilled the terms of your contract
  • In many cases, you can get your vehicle back after it’s repossessed if you pay certain fees and satisfy contract terms
  • Since the bank owns the vehicle, the bank can say that the borrower is required to insure the property
  • Since you must have insurance as a condition of your loan, the lender can seize an uninsured car

When you finance a car, you’re taking out a loan and agreeing that you’ll pay back the lender within a specified period of time. During the term of the loan, you’re free to drive the vehicle as long as you comply with all of the terms set in the financial agreement.

The car might feel like it’s yours because it’s in your custody, but a financed car is never really yours until you pay the loan off in full.

You can pay more on your car loan than what’s due each month, but no matter how much you pay, as long as you have a balance due on the loan, you have to comply with the terms set by the lender or your car can be repossessed.

Compare car insurance rates today to make sure you’re not overpaying.

As soon as you signed the finance contract, you agreed to insure the financed vehicle. Here’s what could happen if you don’t:

What is required of you when you take out a vehicle loan?

Since the average new car costs $31,000 and the average used car costs $17,000, vehicle financing is the most popular way that consumers fund their vehicle purchases.

Since about 84 percent of car buyers acquire their vehicles through financing, it’s very important that shoppers know what they’re getting into before they enter a finance contract.

You don’t only have to meet terms to get an auto loan, you have to fulfill duties once the loan has been funded as well.

Most people are aware of the fact that they need the following to get a loan from a respected lender:

  • Regular income
  • Stable home
  • Deposit
  • Credit history

Here are some of the terms are written into the contract that you have to fulfill to keep your loan in good standing:

  • You must submit your auto loan payments to the lender by the due date (or by the end of the grace period)
  • You must maintain the property and repair damage that’s not defined as normal wear and tear
  • You must disclose the address where the property is stored when you move
  • You must keep the vehicle in your custody. You can’t sell the vehicle until you hold the title
  • You must keep the vehicle in the United States (unless you have written permission from the lien holder to take the car across the Mexican or Canadian borders)
  • You must keep the vehicle registered and pay taxes in the state where you live
  • You must buy auto insurance to protect the property being financed on the loan

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What will happen when you don’t fulfill your obligations as a borrower?

When the borrower and the cosigner on the auto loan don’t fulfill their responsibilities that are written into the contract, the lender will take action.

After all, the bank, credit union, or dealer that financed the car fulfilled its end of the deal when your loan was funded.

Now that you have the vehicle, you can’t decide that you don’t want to comply.

When you don’t comply with one or more of the terms set forth in the lending contract, your loan can go into default.

Being in default means that you have failed to fulfill the terms and the lender can end the contract, take back the property, or seek a judgment against you in the court of law.

Being in default can affect your creditworthiness.


What are the most common reasons a loan goes into default?

Statistics show that between 3.5 and 5 million cars are repossessed because borrowers don’t pay their loan payments.

Failing to pay on time is a common reason you can default on your loan, but you have to be more than just a few days or weeks late.

With most companies, you’re not really in default until you’re 90 days late. If you can’t pay the past due amount and the upcoming payment for a month or so, you’re just considered to be delinquent.

At this time, you can contact your insurer and try to make arrangements to avoid going into default. Check your contract to see what the time frame is.

If you don’t have insurance, can your loan go into default status?

Failing to keep insurance on your car might not seem as bad as failing to pay the lender. After all, if you’re paying your lender and you’re not paying your insurer at least the finance company is getting the money they are owed.

Unfortunately, that’s not how it works. You must pay your lender and your auto insurance company to satisfy your loan contract.

If you have to choose between paying your lender and your insurer, your loan will go into default status as soon as your car insurance is canceled.

It’s up to the lender to decide if they want to seize your car or take other actions to collect the debt that you owe. Lenders are allowed to repo a car for not having insurance, but that’s not always what the company does.

If you are officially in default on your loan, the lender will send you a letter. The letter will tell you the steps that you need to take if there are any, to get out of the default status.

If there’s no way to get back in the lender’s good graces, your account will be assigned to a repo company that will start to take steps to repossess your car.

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Does the bank have to give you advanced notice that they are going to repossess your car?

In most states, once a car loan is in default, a lender is free to repossess the car at any time.

There are obvious tactics that are considered illegal, but as long as the agent who repossesses the car is in compliance with the law, the borrower doesn’t have to be given advanced notice.

The notice that the car loan is in default is enough.

Where can the company seize the vehicle?


If you don’t keep insurance on your car right after you buy the car, the lender might not be willing to take any chances with you.

When the company decides to seize the car instead of making other arrangements with you, they have legally seized your car. Here are some repossession limitations that exist:

Why do many lenders choose not to repossess a car with no insurance?

Most lenders won’t repossess a car when the car isn’t insured. The main reason why repossessing the car is the last resort is because the lender loses out on a lot of profits.

Surveys show that lenders only recoup about 63 percent of the outstanding balance of the loan when they re-sell a seized car.

Instead of losing out on a huge portion of the profits, the lender will force-place insurance on the loan. This means that the borrower can keep the car but they will pay more each month on the loan because a fee for lender insurance has been added to the balance.

Don’t pay more to finance a car because you don’t have insurance. Get a full coverage policy at a low price by comparing rates with dozens of companies.

Use our online quoting tool, and get your comparison in just minutes.

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