A reader asked if they had to get permission from their bank to re-paint their car:
I own an older car with a bad paint job, and I’ve still got another year of payments left before I own it free and clear. I took the car to the body shop to see about getting some parts of the car re-painted, and the person I talked to said I would need to get my bank’s permission before I painted my car. Is this true?
In a word, no. The bank has an interest in your vehicle, but that interested is limited. You can paint the car any color you want.
However, there are a couple of situations where the bank can tell you what to do.
1) You need to maintain full coverage auto insurance or the bank will force-place coverage for you
Vehicle lenders require their customers to maintain full coverage car insurance. This is a requirement because:
- A wrecked or totaled car has very little monetary value, far short of the value of the lien. Therefore, the only way a bank can recover their investment on a wrecked or totaled car is via a car insurance pay-out.
- Damaged vehicles are supposed to be fixed so that the value of the vehicle is maintained. By mandating coverage, the bank increases the odds that they’ll recover a vehicle in good condition should you stop making payments (unlikely as that is).
Most states allow lenders to force-place an auto insurance policy on your behalf if you do not maintain coverage on your own. Typically, this force-placed insurance is dramatically more expensive than coverage you can buy on your own. Therefore, it’s a bad idea to let your car insurance policy lapse (it’s a bad idea for a lot of reasons).
2) Your loan or lease agreement requires you to repair your car
While it’s certainly possible that your vehicle loan contract (known as a retail installment contract) has a clause requiring you to repair damage, I’m not aware of any auto lenders that mandate repairs. However, lease agreements are an entirely different matter.
Most leased vehicles must be repaired if/when they suffer any damage, except for damage that falls under the description of “normal wear and tear.”