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Who Is the Legal Owner of a Car on Finance for Insurance Purposes?

One of the biggest points of confusion among motorists considering car finance is where they stand in terms of legal ownership.

Car driver

At least, as far as their insurance is concerned. It's generally acknowledged that the borrower doesn't take formal ownership of the vehicle until the end of the contract, so what happens with insurance in the interim?

The short answer - you still need a valid insurance policy, but you may need a different type of policy than you're used to.

Car Finance: Who Owns the Vehicle?

Contrary to popular belief, it's actually relatively simple. When you pick up a car on a personal contract purchase (PCP) agreement, you are effectively leasing the car for the duration of the contract. In a sense, you could also say the same about hire purchase. This is because ownership of the vehicle isn't transferred to the buyer, until they have paid for it in full.

In the meantime, the service provider remains the legal owner of the car. The borrower is simply the registered 'keeper' of the vehicle. The concepts of 'keeper' and 'owner' are entirely separate in the United Kingdom. Roughly translated, you can own a car without actually being the person responsible for it.

From an insurance perspective, this means that the registered keeper of the vehicle is responsible for driving it in a safe and legal manner. It also means it is the responsibility of the registered keeper to ensure they obtain the necessary insurance. If anything untoward happens to the vehicle during the course of the contract, it falls within the responsibility of the registered keeper - not the owner.

How Does Car Finance Affect Insurance?

You will occasionally come across a car finance deal (typically leasing) where insurance is included as part of the contract. Or perhaps, a year or so of insurance will be paid for by the service provider. More often than not, however, it's up to the driver to ensure they organise the necessary insurance. It's unlikely you will be handed the keys to the car in the first place, unless you can provide a valid insurance certificate when signing the agreement.

In terms of how car finance could affect your eligibility for insurance, it varies significantly from one provider to the next. For example, some insurance companies charge higher rates for car finance customers, given that they assume the driver won't necessarily look after the car as they would if it was their own property. There are even some insurance companies that won't insure cars financed on PCP or HP deals at all.

On the plus side, these super-restrictive insurers are few and far between. Particularly in an era where PCP and HP car finance options are becoming more popular all the time, insurers are finding themselves with no option but to offer competitive deals for car finance customers.

Shop Around for the Best Deal

There are two important things to remember when setting yourself up with insurance as a car finance customer. The first of which being that you absolutely MUST ensure you tell the insurer you are purchasing a car on finance. If you don't, it could render your insurance null and void in the event of an accident. In which case, it could also land you in a lot of trouble.

Insurance policies tailored to motorists driving cars they technically don't own are very different from standard vehicle insurance policies. If you're driving with an inappropriate policy, you're driving without insurance - it's as simple as that.

Secondly, it's imperative that you compare the market to find the best possible deal. Rather than going directly to any individual insurer, take your business to an independent broker. Along with all the usual household names, they'll be able to compare deals from the UK's best independent insurers on your behalf. –

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