When you submit an insurance claim to pay for repairs on a financed vehicle, you typically have to endorse the check over to your lienholder. This means that you sign the check, and your lienholder deposits the check into its own bank account and the lienholder then pays for the car repairs. Lienholder's require you to negotiate repair checks in this manner to ensure the car repairs do not jeopardize the lienholder's security interest in your car.
Insurance checks are jointly payable to both the car owner and the finance firm that has a lien on the car. Neither party can negotiate the check without the endorsement of the other. If the lienholder signed the check first, you could deposit the check into your account and use the proceeds for any purpose. If you failed to pay the car repair shop for the work done on your car, the repair shop could go to court and have a lien placed on your vehicle.
Cars lose value over time. If you default on your car loan payments, your lender can repossess your car and sell it at auction to recover its costs. If a car repair shop places a lien on your car, your lender must payoff that lien before it can auction your car. If your car does not hold enough value to cover both liens, then your lender cannot recoup the full amount that you owe on the defaulted loan. Therefore, to protect lenders from such problems, lenders do not usually endorse insurance checks over to car owners and trust the car owner to use the proceeds to pay for the repairs.
After completion of your car repairs, you are typically responsible for collecting the invoice for the final repairs and presenting the invoice to your lender. At that point, your lender normally issues a new check or initiates an electronic transfer in order to send the funds to the repair shop. Alternatively, your lender may issue a new check made payable to both you and the car repair shop. You must then take the check to the repair shop and endorse it over the repair shop. By making the check payable to both you and the repair shop, the lender prevents you from being able to misappropriate the funds.
While lenders typically require you to endorse insurance checks first, there are no actual laws that require you to do this. Your lender may agree to endorse an insurance check over to you in which case you can deposit the check into your own account and then pay the car repair shop with your own check. However, do not pay for repairs with your own proceeds ahead of time and assume that your bank will endorse the insurance check over to you in order to reimburse your out-of-pocket costs. Your lender may end up paying the car repair shop again and leave you having to try to get a refund for your original payment to the repair shop.