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Why do lenders always make you secure a car loan with the car as collateral?

I'm not all that knowledgeable about car loans, but I want to understand more. Why do lenders make you secure a car loan with the car as collateral?

avatar
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Great question! A
car loan
is a type of secured loan, which means that the lender holds collateral. In the case of a car loan, the vehicle itself is the collateral. The reason why a lender holds your car as collateral is because it holds value that can be liquidated if you default on your loan.
Because the lender holds the vehicle as collateral, they also want to make sure it retains its value. That’s why lenders make sure that you have
comprehensive coverage
and collision insurance on your car. In case something happens, the car is fixed back to like-new condition.
Since lenders require full coverage car insurance, you may as well shop around to save the most money. The easiest way to do this is with the
Jerry
app—we’ll get you customized quotes from top providers, so all you need to do is choose the plan that works best for you!
Kudos to you for wanting to learn more, and hope this was helpful!
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