What to Do When Your Car Is Totaled and You Still Owe Money

What Is a Total Loss?

An insurance company may declare your car a total loss, or “totaled,” when the cost of repairing your car is higher than the value of your car.

In some states, insurers are required to declare your car totaled if the damage is beyond a certain percentage of the car’s value. Some insurers say the vehicle is totaled at 50 percent and others at 65 or 70 percent.

What Happens When Your Car Is Totaled and You Still Owe Money?

When an insurer declares your wrecked car a total loss, it will pay you the value of your car just before the accident, minus depreciation and your deductible. The check may come to you, with you and your lender as signatories, or it may go directly to your lender.

You might ask: If my car is totaled, do I still make payments? Yes.

You must continue to pay on your car loan while all of this gets worked out. You don’t want to fall behind on payments and take a ding against your credit. That could hurt your credit and could impact what you pay for auto insurance on top of a possible increase in premium from the accident at renewal.

Unless you have a policy specifically to pay for the replacement cost of your vehicle, the insurance payout may be for the actual cash value of your car at the time of the accident. That may not be enough for you to buy a new car, or it might even be less than what you still owe.

What Is the Actual Cash Value of a Car?

Actual cash value (ACV) is what you could reasonably get by selling your car in the current market. Cars begin to depreciate as soon as you drive them off the lot, so the ACV will be less than what you paid for your car.

If you believe the ACV should be higher than what your insurer determines — because of low mileage or features — then you can negotiate with your insurer. However, you must provide proof for a higher valuation, and that might require hiring an appraiser.

File a Claim for Total Loss

Your insurer will take possession of your car after declaring it a total loss. To turn over your vehicle, you will file a total loss claim, which will also help determine the payout. Here’s what you need to send your insurer for your car:

• Sales receipt or bill of sale
• Title
• Odometer reading (mileage)
• Power of attorney

The power of attorney will allow your insurer to work with your lender to transfer ownership. Consider removing personal items from your car.

You can talk to your insurer about keeping your car after it’s been declared a total loss. However, depending on your state, you may not be able to drive with a salvage title, you will face the cost of repairs, and you will need to apply for a rebuilt title. After that, you may have trouble finding insurance, and it may be at a much higher premium.

What Happens if You Total a Financed Car With Full Coverage?

Your lender likely required you to take out full coverage on your car, even if you wondered whether you needed collision insurance or comprehensive coverage. Your insurer will send a check for the actual cash value to your lender, minus your deductible, if your car is totaled.

Your collision policy can cover the damage to your vehicle. However, if someone else was at fault, that driver’s liability insurance may pay for the damage to your car and you won’t have to pay a deductible.

In either case, the payment will be for your car’s ACV. If the ACV is less than you owe on your loan, you will have to pay the difference, unless you have GAP insurance. GAP, or guaranteed asset protection, can pay the difference between the ACV and what you owe.

What to Do When Your Car Is Totaled and You Still Owe Money With No Insurance

With no insurance, you may find yourself in an even more chaotic situation if you crash and your car is totaled. You might consider hiring an auto lawyer to help you figure out your best options.

If an accident is your fault, you will have to pay off your car loan. If another driver is at fault, that driver’s liability insurance may pay the actual cash value of your car, but you will be responsible for any amount above that.

The other driver’s insurance also may pay for lost wages and medical expenses. Reach out to your lender as soon as possible after the accident.

Driving without insurance can lead to a mountain of financial problems. While paying off your car loan, you may also have the expense of buying another car. You may be fined for failing to carry insurance, and you could face additional penalties, such as the state suspending your license, impounding your car, or sending you to jail.

Talk to ConsumerShield About Insurance

Adding full coverage, including GAP insurance, to your auto insurance policy can go a long way to safeguarding your financial well-being. At ConsumerShield, we enjoy sharing our knowledge about insurance with you. If you have questions about what to do when your car is totaled and you still owe money, we can help. Give us a call today.