What is a Financed Car? - Insurance Navy. A financed car is purchased with borrowed funds, typically through an auto loan from a financial institution such as a bank, credit union, or dealership financing. The borrower, the car owner, must repay the loan amount and any annual percentage rate and fees over a specified loan term, as outlined in a loan agreement, usually over monthly payments.
In the context of insurance, a financed car often requires full coverage insurance, which includes both collision and comprehensive coverage, as a condition of the loan. This is to protect the lender’s investment in the vehicle. If the car is damaged or totaled, the insurance payout helps ensure the loan can still be repaid. The car itself serves as collateral for the loan.
It’s important to note that while the car is financed, the lender may be listed as the lienholder on the vehicle’s title and insurance policy.