The requirement to maintain comprehensive and collision insurance, often referred to colloquially as “full coverage,” is a common stipulation when obtaining an auto loan. This stipulation safeguards the lender’s investment in the vehicle by ensuring that the asset is protected against physical damage or loss. For instance, if a vehicle is totaled in an accident or stolen, insurance proceeds can be used to repay the outstanding loan balance.
This practice mitigates the lender’s financial risk. Without such protection, the lender could face significant losses if the borrower is unable to repay the loan due to the vehicle’s damage or loss. The demand for this level of insurance reflects prudent risk management by lending institutions. Historically, lenders have always sought ways to secure their investments, and requiring comprehensive and collision coverage is a modern manifestation of this fundamental principle.
