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Can a lienholder mandate your deductible amount?


Question: Is it legal for a lienholder to mandate you to have a $500 deductible on a vehicle?

Answer: Yes, it’s legal for a lienholder, such as a bank or finance company, to tell you what your physical damage deductible amount should be.

It is quite common for your financing paperwork to stipulate that you must carry certain car insurance coverages and list the maximum deductible you can carry on them. If you don’t agree to these portions of your finance contract, then you won’t be loaned the money for the vehicle.

Lienholders require that you place collision and comprehensive coverages on the vehicle so that it’s better protected if in an accident.

These coverages pay to have the car repaired if it is damaged or its actual cash value if it’s totaled out, regardless of fault. The car is their asset, so they want as protected as possible.

The benefits for those damages, however, start after a deductible amount is paid. So, your lienholder typically also has a say on how much your deductible can be.

In general, lienholders will require that the deductible amount is no greater than $500. This means you can pick a lower amount if you’d like, but not higher such as $1,000 or $2,500.

If your deductible amount is too high, the lienholder’s belief is you may not be able to pay it.

Remember, the deductible is due before your car insurance benefits are paid out. If you can’t pay your deductible, then your auto insurance company will not pay for its portion of the repair costs. This means the lienholder’s asset, the car, wouldn’t be repaired, and this is not OK with them.

Having lower deductible amounts normally does mean higher car insurance rates, but if you take a loan out on your vehicle it’s usually a requirement. If you don’t like it, you can shop around for a different financing company that doesn’t have this mandate.

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2 Responses to "Can a lienholder mandate your deductible amount?"
  1. nykole

    What if your finance company wants you to have a $250 deductible and you have it set at $500. Do you have to change it?

  2. Brad

    But what if there is no mention in the original loan contract about a set maximum deductible, and then you get an ex post facto notice from the lender stipulating a deductible requirement? Seems to me, if the original contract does not mention it, it should not be enforceable.

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