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Lender trying to add money to principle because of insurance

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Lender trying to add money to principle because of insurance

I have bad credit, so my most recent vehicle is in my parents' name as is the insurance policy.  Therefore, I don't know all of the details here, but I will tell you what I know and see what everyone has to say about this.  My mom said that they have been getting letters from the lender saying that they are going to add $700 to the loan principle and increase the monthly payments from $175 to $250 if they don't get "proper insurance" on the vehicle.  This is coming up 9 months into the loan, and the vehicle is insured properly.  Can they even do this?  Can they force them to get "better" insurance?  How could a lender suddenly add money to the principle?
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Frequent Contributor

Re: Lender trying to add money to principle because of insurance

The lender has the right to require certain levels of insurance on the vehicle. If you don't maintain the insurance they require, then they can "force-place" insurance and add the premiums to your loan amount. Typically force-placed insurance is much more expensive than the insurance you can get on your own. If you read the small print of your contract, there will be a clause in there somewhere explaining all this.
 
You need to review the letters you've been getting from your lender to determine what insurance requirements they have. If you're not sure, call them. Then compare those requirements to the insurance you have on the vehicle. If they aren't the same, contact your insurance company to update your insurance to match the lender requirements. Finally, give your lender proof of insurance - probably a copy of your declarations page and/or insurance card.
 
Don't panic. It's just a hoop you have to jump through; most likely the loan paperwork was missing your proof of insurance. Just make sure you take care of it now before they add the force-placed insurance because reversing it can be a bear.
 
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Frequent Contributor

Re: Lender trying to add money to principle because of insurance

I had a similar situation to yours. I changed insurance companies and the new insurance company didn't send the declaration page to the lender, a little bit of a head ache for me but was fixed with calling the insurance company and having them fax the needed info. Yes, the lender can make you adhere to the insurance requirements. Your coverage has to cover the loss should there be one. A lot of lenders also require them be the payee in the event of an accident. You need to review your letters from the lender as well as your insurance coverage and make adjustments to your policy to comply, then have the insurance company fax the information to the lender. 
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