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Every car owner knows that paying for and maintaining a vehicle is expensive. If you are financing a vehicle on a tight budget, you may wonder whether you can drive it without auto insurance, but we don’t recommend driving with no insurance on a financed car.

In this article, we’ll explain the insurance requirements that keep you secure in your financed vehicle, and what you can do if you can’t afford your insurance premium.

If you’re looking for new car insurance, use our tool below or call (844) 246-8209 to compare quotes from the best auto insurance providers.

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Do You Have To Buy Insurance On A Financed Car?

Yes, financed cars have to be insured. Until your financed car is completely paid off, the car is owned by your lienholder, and the lienholder 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” insurance on vehicles, which includes collision coverage, comprehensive coverage, and liability coverage. Here is what each of these types of auto insurance coverage means in a nutshell:

  • Collision insurance: Collision insurance repairs or replaces your own vehicle after an accident.
  • Comprehensive car insurance: Comprehensive insurance repairs or replaces your car if it is stolen or damaged by a non-collision event like a natural disaster or vandalism.
  • Liability auto insurance: Liability insurance takes care of the other driver’s property damage and medical expenses if you’re found at fault in an accident.

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

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

If your lienholder requires full coverage insurance and you do not purchase full coverage insurance, it is a violation of 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 your lienholder finds out that you are driving uninsured, the company can put “force-placed insurance” on your account.

That’s not a good thing.

Force-placed insurance means that the lien holder buys the required level of insurance and then tacks on the cost to your monthly payments. The premiums for force-placed insurance can be very high. In addition, force-placed insurance is designed to protect the provider of your car loan, not you.

Additionally, it is illegal to drive without car insurance. If you are 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 operating a financed car often requires full coverage auto insurance, the insurance cost is relatively pricey.

Your financed car’s insurance cost depends on a variety of factors including your age, gender, and driving record. According to a 2019 AAA study, the average cost for full coverage insurance on a medium-size sedan was $1,251 per year.

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

So, if you would like a lower premium and you are confident that you could afford a roughly $1,000 deductible in case of an accident, you might consider requesting a higher car insurance deductible from your chosen car insurance provider.

What If I Can’t Afford Insurance?

Whether or not you feel like you can afford auto insurance right now, you need to have it in order to drive the car you are financing or planning to finance.

Below are five tips to lower your car insurance rates and start saving money for insurance.

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

Our Recommendations For Auto Insurance Providers

You should purchase full coverage insurance if you are financing or planning to finance a car. It’s just not worth it to drive with no insurance on a financed car.

To find the right provider, we recommend getting auto insurance quotes from multiple insurers so you can compare coverage and rates.

In addition to the insurance company you choose, factors such as your age, vehicle make and model, and driving history can affect your premium, so what’s best for your neighbor might not be best for you.

Our review team analyzed the top insurance providers in the industry and compiled a list of the best auto insurance companies that you may find useful in your search. Three providers that offer affordable full coverage car insurance include Geico, USAA, and State Farm.

#1 Geico: 4.6 Stars

Geico is one of the largest insurance companies in the U.S. and our pick for the best overall auto insurance company.

As a part of national holding company Berkshire Hathaway, Geico wrote over $34 billion in premiums in 2019, according to the National Association of Insurance Commissioners.

Geico auto insurance received a 4.6-star rating in our review for its availability, affordable cost, and excellent customer service. The company holds an A++ financial strength rating from AM Best, which means that Geico is well-suited to pay claims to members.

Read our full Geico auto insurance review.

#2 USAA: 4.8 Stars

For those who serve or have served in the military and their families, USAA car insurance is an outstanding option. Based in San Antonio, USAA stands for United Services Automobile Association and has more than 12.8 million members.

USAA received a 4.8-star rating from our review team for its excellent claims servicing, availability, and cost. Like Geico, USAA holds an A++ AM Best rating, the highest possible rating of financial stability.

Read our full USAA auto insurance review.

#3 State Farm: 4.6 Stars

The largest car insurance company in the nation, State Farm offers comprehensive coverage with great discounts for students, bundled insurance, and new drivers.

We especially like State Farm auto insurance for its safe driving programs.

Drive Safe & Save™ can save you money by monitoring your safe driving habits, like braking smoothly and not accelerating too quickly. For younger drivers, there’s Steer Clear®, which promotes safe driving habits and reinforces the rules of the road.

Read our full State Farm auto insurance review.

To learn how much you would pay for your auto insurance policy, use our tool below or call our team at (844) 246-8209 to start comparing personalized car insurance quotes:

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FAQ: No Insurance On A Financed Car


In an effort to provide accurate and unbiased information to consumers, our expert review team collects data from dozens of auto insurance providers to formulate rankings of the best insurers. Companies receive a score in each of the following categories, as well as an overall weighted score out of 5.0 stars.

  • Industry Standing: Insurers with strong financial ratings and customer-first business practices receive the highest scores in this category.
  • Availability: We consider availability by state as well as exclusions for specific groups of drivers.
  • Coverage: This rating is based on types of insurance available, maximum coverage limits, and add-on policies.
  • Cost and Discounts: Our research team reviews sample quotes for a variety of drivers in every state. Companies with lower prices and many car insurance discount opportunities receive the best scores.
  • Customer Service: We comb through customer reviews and consumer feedback studies from experts like J.D. Power.
  • Technology: Auto insurers with mobile apps, advanced online services and telematics are more likely to meet consumer needs.