When It’s Enacted
Typically, CPI is enacted when a borrower fails to provide proof of auto insurance coverage, including collision and comprehensive coverage and gap insurance. These coverages cover the borrower’s property damages, whether from collisions or weather conditions, theft, vandalism, etc. If the borrower doesn’t have collision or comprehensive coverage and their car is totaled, they may still owe an amount on their loan, which gap insurance would then cover. If they don’t have gap insurance, the lender would enact CPI to make sure they can recoup the loaned amount.
How It Impacts You
If you purchase the minimum coverage your lender requires, CPI won’t affect you at all. However, if you fail to provide proof of insurance, such as an insurance ID or declarations page, your lender may enact CPI. This means you’ll be responsible for the cost of any property damages, not your loan provider.
What Happens if CPI Isn’t in Place
If CPI isn’t in place, it means you provided the necessary proof of insurance via your insurance ID or policy declarations page. Then, if you total your car, your gap insurance will cover the remaining account on the loan, removing the need for the lender to protect itself with CPI.
If CPI hasn’t been enacted and you still owe money on your loan and have no insurance, your lender may repossess your car, and the repossession will show up on your credit report. Having a bad credit score makes car insurance more expensive and means you’ll have higher interest rates on your auto loans.