What is a Letter of Guarantee?
A Letter of Guarantee associated with a vehicle loan is normally requested by a vehicle insurance company when it has declared the vehicle as a total loss, which may occur due to an accident or unrecovered theft. The insurance company sends the request to the financial institution that is financing the vehicle. In this scenario, the financial institution is called the Lien Holder or Loss Payee.
The Letter of Guarantee will state the dollar amount that the insurance company is willing to pay the financial institution for the vehicle (usually the average retail value of the vehicle minus the insurance deductible) or it will request a loan payoff amount from the financial institution. Sometimes the amount that the insurance company pays is not enough to cover the loan balance and the borrower will be required to continue paying on the loan. The letter also asks the financial institution to guarantee that it will release its lien on the vehicle title and send the title to the insurance company once the claim payment is processed. The insurance company also usually asks for a copy of the vehicle title.
Once the financial institution sends the Letter of Guarantee back to the insurance company, the insurance company completes processing the insurance claim and sends the funds to the financial institution. Once the funds are applied to the loan balance, the financial institution releases its lien on the title and sends the title to the insurance company. If there is still a loan balance, the borrower will be contacted.
If you need MECU to send a Letter of Guarantee, please have your insurance company fax your request to Lending Services at 847-538-4563.
KBID: 2526Date Modified: 3/18/2013Date Created: 5/21/2010
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