Lienholder Insurance Guide: How Does a Lienholder Affect Car Insurance Rates?

A car insurance lien holder is the one who finances your car. Lienholders require full coverage car insurance to protect their interest in your vehicle. With a lien, you might have to buy collision and comprehensive coverage for your car, which could add $483 a year to your rates. Compare cheap lienholder car insurance quotes online to save!

Free Car Insurance Comparison

 Secured with SHA-256 Encryption

Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State...

Full Bio →

Written by

Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses...

Full Bio →

Reviewed byJoel Ohman
Founder, CFP®

UPDATED: May 30, 2020

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We partner with top insurance providers. This doesn't influence our content. Our opinions are our own.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

Here's what you need to know...

  • Lienholders require full coverage auto insurance to protect their interest in your vehicle
  • Many factors go into the determination of your rates for insurance
  • If you do not purchase the bank-required car insurance coverages, they can purchase insurance for you, and you will pay the additional costs

If you have a lien on your vehicle, it will affect car insurance costs.

Lienholders have a stake in your car if they are financing the vehicle. They want to protect their investment, even if you do not. The lienholder is likely to require you to carry full coverage car insurance on the vehicle for protection.

To compare car insurance quotes, enter your ZIP code in the search tool to get started!

The definition of full coverage insurance may be something different depending on whom you ask and where they live.

Since car insurance laws differ by state, coverage details are different. Even insurance carriers have to be licensed in the states they serve, so they are regulated and held accountable to the laws of each state.

What type of insurance do lienholders require?

When consumers go to buy a car and use a finance company to pay the seller, a binding contract is formed.

Not only do these consumers have to pay back these loans with interest, but they also promise to purchase enough insurance to pay the financier in case the vehicle is significantly damaged or completely totaled.

In order to do this, collision and comprehensive auto coverage must be secured.

Most auto loan finance companies do not allow their customers to buy liability-only coverage. Not only would this put the person responsible for paying the auto loan at a financial risk, but it could cause the vehicle itself to become a liability.

Liability car insurance coverage does not pay out for car repairs on the vehicle that is covered.

In the event that the car is repossessed, the lienholder would suffer a financial loss because the vehicle would no longer be as valuable because of the damages.

J.D. Power & Associates lists the highest rated car insurance companies in the U.S. that issue the largest number of policies.

You might find auto insurance providers with lower rates that are not listed by J.D. Power, but it is in your best interest to find out more about their reputation before purchasing a policy.

There are some car insurance companies that unjustly make it difficult for consumers to have their claims approved.

Free Car Insurance Comparison

Enter your zip code below to view companies that have cheap auto insurance rates.

 Secured with SHA-256 Encryption

Does a lienholder determine car insurance rates?

Your lienholder does not determine your car insurance rate. Your individual or family situation determines your insurance rate. The lienholder makes your loan conditional.

That condition is that you maintain full coverage to protect the investment in the event of an accident. To fulfill the condition, you will have to pay more for what is considered full coverage in your state.

In most states, the addition of collision and comprehensive coverage constitutes full coverage.

Collision covers the vehicle in the event of an accident involving another car or object. Collision covers your vehicle if it rolls over as well. Collision and comprehensive coverage are grouped together in most policies with a $100 to $250 deductible.

Can a lienholder require a certain amount of car insurance?

A lienholder will not usually require a certain amount of car insurance coverage. This is established between you and your insurance agent. There are set amounts based on state minimums.

You have the option of choosing how much coverage you pay for as long as it is enough for replacement costs or actual cash value of your car.

If you have an antique car or specialty vehicle that is financed by a lender, they want to be assured your car is covered with enough collision and comprehensive to cover the cost of repair or replacement.

You may have to have your car appraised to determine the value. If you own a specialty car this amount was probably determined when the lender loaned you the money for the renovations or for whatever reason they loaned you the money.

Free Car Insurance Comparison

Compare quotes from the top car insurance companies and save!

 Secured with SHA-256 Encryption

What other factors affect car insurance costs?

Your lien is not the only factor that affects your car insurance rates. Other factors include such things as:

  • Make and model of vehicle
  • Marital status
  • Age
  • Credit
  • Gender
  • Driving record
  • Zip code
  • Club or professional affiliation

The make and model of your car is an important factor in determining rates. For example, sports cars cost more to insure than minivans.

Insurers figure the likelihood that a sports car driver is going to take more risks than a soccer mom driving a minivan is very high.

Presumably, a 32-year-old male is going to have more experience and take fewer risks than a 25-year-old.

Your zip code describes the potential for an accident, vandalism or theft. Your credit rating and driving record tell the agent a lot about you as a person and your driving practices.

Free Car Insurance Comparison

Enter your zip code below to view companies that have cheap auto insurance rates.

 Secured with SHA-256 Encryption

What happens to car insurance once a lienholder receives the last payment?

Once you have paid your last installment on your loan, you can make changes to your policy. These changes may not be effective immediately depending on where you stand on your current policy.

If you have made advance premium payments, you may have to wait for a new payment cycle for the change to become effective.

By the time you have completed your lien payment installments, your car may be less valuable than it was when you initiated your policy. As your car ages, you have no need for the maximum amount of comprehensive coverage.

That is good news to a person who has struggled with expensive premiums. However, if you can afford to keep the coverage, it may be wise to do so.

Is the lienholder notified if I drop my collision and comprehensive car insurance?

Some people may be thinking, “Hey, I could purchase collision and comprehensive coverage to satisfy the condition, and drop it with my policy renewal.”

This may be possible for a short while, but once your lender receives notification from DMV that you are only carrying liability, they may have the right to accelerate your loan or repossess your vehicle.

Can lienholders take out a car insurance policy on your vehicle?

In the event that you fail to buy a sufficient amount of car insurance, lienholders can and often do take out their own car insurance policies.

Not only will you be responsible for paying back the premiums on these policies, but you might also be subject to additional interest charges.

Your car loan payments would probably not go up if you did not buy the required amount of insurance, but the length of your loan would likely be extended.

If you do not make payments to your auto loan finance company for the additional car insurance policy taken out, your vehicle could be repossessed and your credit would be heavily damaged.

In some cases, lienholders will take out their own car insurance policies simply to protect their financial interests.

These types of auto policies do not require repayment, but you would also not receive any payment if an insurance claim was filed. Lienholders also financially benefit first when a car is sold.

By entering your ZIP code below, you can receive comparison car insurance quotes with no obligation today!

Free Car Insurance Comparison

Enter your zip code below to view companies that have cheap auto insurance rates.

 Secured with SHA-256 Encryption

What is a car insurance lienholder?

A car insurance lien holder is the one who finances your car. With a lien, you might have to buy collision and comprehensive coverage for your car, which could add $483 a year to your rates.

  • Car insurance lien holder is a term used when financing a car through a bank or other similar institution
  • Having a car insurance lien means that drivers are forced to purchase additional insurance if the bank requires
  • Paying cash is the best way to avoid having to deal with the hassle of a car insurance lien holder

If you’ve ever purchased a brand-new car directly from a dealer, you may be familiar with what’s known as a car insurance lien holder, especially if you financed the car through a bank or other financial institution.

When you purchase a new or used car through a financing arrangement, it’s important to look not only at the bottom-line price but also at some of the hidden costs involved.

One of those hidden costs could be in the type of insurance the financing company requires you to carry.

Does a lien affect car insurance? Maybe. The higher cost of comprehensive and collision insurance that the lienholder may require may cost as much as $483 a year, pricing you out of the vehicle you really want and into a less desirable one.

If you’re not familiar with the term, read on to learn all you need to know about the subject. Then start searching for car insurance quotes now by typing in your ZIP code below.

Why would the lienholder be listed on your car insurance policy?

Banks and other financial institutions file liens on financed cars in order to protect their investment. These liens cover not only the vehicle title but also the insurance carried by the car buyer.

In simplest terms, when you finance the purchase of a car, you don’t really own that vehicle until it is completely paid for.

Prior to that, the financing company owns the car. The lien is placed on the title and insurance policy so that if the car suffers a total loss the financing company can recover its money.

With this knowledge, it’s easy to understand why a lien is placed on the title. But the insurance lien is a bit more complicated.

This type of lien is filed as a means of forcing car buyers to purchase comprehensive insurance at a level great enough to protect the bank’s investment.

Car buyers will usually find written somewhere in the agreement that a failure to provide such insurance will enable the financing company to force a policy of its own choosing on the car buyer.

Free Car Insurance Comparison

Compare quotes from the top car insurance companies and save!

 Secured with SHA-256 Encryption

What’s the difference between carrying my own insurance and the bank’s forced insurance?

It’s not uncommon for car buyers to run into financial trouble and cease making insurance payments. In some cases, the rationale is that the bank will trigger its forced insurance option and cover the cost anyway.

What many don’t realize is that the car buyer is still responsible for paying the premiums.

Those premiums tend to be extremely high which puts financially troubled car buyers in a worse position.

Before buying a new or used car through a financing arrangement, it’s important for buyers to assess their financial situation.

They need to know if they can afford the both car payment as well as the monthly insurance payments.

Failing to provide insurance will trigger the car insurance lien filed by the financing company causing major headaches you don’t need.

If you can’t afford the cost of comprehensive insurance, you might need to consider other options.

Free Car Insurance Comparison

Enter your zip code below to view companies that have cheap auto insurance rates.

 Secured with SHA-256 Encryption

What are the other options available to avoid a car insurance lien?

While it may be uncomfortable and inconvenient to have to save the money ahead of time, paying cash not only eliminates the possibility of a car insurance lien, but it also eliminates the interest payments you would make if you financed the car purchase.

One of the best ways to employ this option is to begin putting away money well before the time you’ll need to purchase a new car.

There is a second option, though it’s not recommended unless you have demonstrated strict financial discipline in the past. This option is using a credit card for a car purchase.

When using a credit card to purchase a car, if you can fully pay off the balance in six months or less the interest payments usually add up to less than the combined interest payments and insurance costs of going the route of a traditional loan.

Be very cautious in using this option. If you extend payments beyond the six-month period, you could end up paying significantly more.

Regardless of whether or not you have a car insurance lien attached to your new car purchase, it’s always wise to carefully consider your investment and whether or not you truly need comprehensive or full coverage.

Even with a car insurance lien, you have the right to search for the best insurance rates in your area. Get started comparing car insurance quotes now by entering your ZIP code.

Does Having a Lien on Your Car Affect Insurance Rates?

  • When you have a lien on your vehicle, your lender will require additional coverage beyond the state-required minimum.
  • To protect their interest in your vehicle, banks require lenders to purchase collision and comprehensive coverage.
  • Required car insurance lienholder coverage options will cost more. Many factors contribute to your premium, but it will cost more to have full coverage than only having liability.

Having a lien on your car is just one of many factors that go into determining your car insurance rates. How much impact these factors make on your premiums depends on the state where you live, who the lien holder is, and the value of your car.

You can rest assured that if a lienholder exists, you will almost always be required to carry full collision and comprehensive coverage.

If car insurance rates are on your mind, you should take advantage of our FREE search tool to find the best prices by entering your ZIP code now.

If you’re unfamiliar with the terms “lien” or “lien holder,” they’re pretty simple to understand. A lien is simply a legal filing which states someone else has a financial interest in property that you own.

The lien holder is the one who has that interest and has filed the lien. In terms of your car, a lien holder would be the bank that loaned you the money to purchase your car. They have a financial interest in that car until you completely pay back the loan.

Why does having a lien have anything to do with my car insurance?

To understand why liens affect car insurance, you must consider why we have insurance to begin with.

Simple liability coverage required by your state only covers bodily injury and property damage, not the car itself. That means if you have an accident which totals your car, and all you carry is minimum liability insurance, you will have to pay to replace your vehicle on your own.

Banks and other lenders understand that if you have that kind of cash you would not have applied for car loan.

They are operating under the assumption you cannot afford to replace your vehicle out of pocket. This puts them at tremendous risk because your vehicle acts as collateral for the loan.

If you total it, the bank has nothing to take possession of should you default on the loan. For all intents and purposes, they would never be able to collect what is owed by customers who total their vehicles, yet did not have proper insurance coverage.

Free Car Insurance Comparison

Compare quotes from the top car insurance companies and save!

 Secured with SHA-256 Encryption

Does the law require protecting a lien holder with insurance?

Since insurance laws are so different from one state to the next, it’s not possible to make a blanket statement in relation to state law and lien holder coverage.

What we can say is that there are some states that require vehicles with outstanding liens to be covered by collision and full comprehensive coverage.

In states where it’s not required by law, you will most likely be forced to carry the insurance by your banker through a conditional clause in your loan contract.

If you choose to ignore the conditional clause and forgo carrying collision and comprehensive insurance, it is quite likely that your bank will purchase a policy of its own and pass the cost along to you in the form of higher monthly payments.

They have every legal right to do so, by the way.

The policy they purchase is probably going to be more expensive than what you could get on your own, especially when you figure in the bank’s costs of actually acquiring the policy. You will pay more this way, without a doubt.

Free Car Insurance Comparison

Enter your zip code below to view companies that have cheap auto insurance rates.

 Secured with SHA-256 Encryption

What constitutes full collision and comprehensive coverage?

Full collision coverage is defined pretty similarly in all states. It is coverage that will pay for repairs or replacement of your vehicle after an accident that occurs on the public roadways.

Sometimes collision insurance will pay for actions that occur on private property as well. Anything else that might damage your vehicle would be covered under comprehensive insurance.

How much comprehension coverage you have will vary from one insurance carrier to the next.

If you have a lien on your vehicle, your bank may require you to have enough comprehensive coverage to take care of anything that might possibly damage the vehicle.

For example, if you lived in the Midwestern states designated as “Tornado Alley,” you would most likely need a comprehensive policy that will cover your car if it is destroyed in a tornado.

In a nutshell, comprehensive coverage takes care of all those things that collision insurance does not.

These extra coverage options are what cause your car insurance rates to go up. They cost significantly more than minimum liability coverage.

How much they cost will be in relation to:

  • The make and model of your car
  • How many miles you put on it
  • Your personal driving history
  • Any other factors that might directly influence your likelihood of filing a claim

Once your loan is paid off and the lien is lifted, you will no longer be required to carry these extra coverage options.

It’s important for you to comparison shop for collision and comprehensive car insurance rates. Get started now by entering your ZIP code below!



Free Car Insurance Comparison

Compare quotes from the top car insurance companies and save!

 Secured with SHA-256 Encryption