What To Know About Buying a New Car After a Total Loss

If you’re in an accident and the repair cost exceeds the car’s value (or the car is damaged beyond repair), your insurance company will deem your vehicle a total loss. The company might then issue you a check for the value of your vehicle so you can buy a new car.

Insurance claims are rarely pleasant, and buying a new car after a total loss can feel daunting (especially if you have bad credit). Knowing what to expect can help it go more smoothly — here’s what you need to know.

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Will the insurance company buy me a new car after a total loss?

The insurance company doesn’t literally buy you a new car after a total loss. Instead, it’ll do one of two things:

• If you own your vehicle outright, it will cut you a check for the value of your vehicle.
• If you are financing or leasing, it will send the check to your lender to pay off your remaining loan or lease balance, and you will receive the leftover funds (if there are any).

Note that your deductible will be subtracted from any payout amount. The above scenarios also assume that your claim is covered. Whether your insurance company will cover your total loss depends on the accident and the type of coverage you carried at the time.

If you’re at fault and carry liability-only insurance, you’re unfortunately out of luck. You’ll have to pay for your next car out of pocket. If the other driver is at fault, their insurance company will handle the claim and issue any applicable payouts.

How does the insurance company determine the value of my car?

Depending on your vehicle (and its pre-accident condition), you may be surprised by how little your claims check is following a total loss. That’s because your insurance company doesn’t base your claim on your vehicle’s manufacturer’s suggested retail price (MSRP).

Thanks to car depreciation, your totaled car may have lost 15% to 20% of its value during the first year you owned it. And when it comes time for the insurance company to determine the value of your car, depreciation is one of the most significant factors it considers.

After an accident, an insurance adjuster will inspect your vehicle to determine the extent of the damage. Your company might also use a third-party service to gather information about your car, including wear and tear, the odometer reading, its prior claims history and the average market price for the make and model. In other words, the adjuster will determine how much the has depreciated.

Car insurance companies use this information to figure out your vehicle’s actual cash value, or ACV. ACV is how much your car is worth after depreciation and represents the maximum amount the insurance company is willing to pay to repair or replace your vehicle.

What if I don’t agree with the insurance company’s valuation?

If you think that the insurance company has undervalued your vehicle, it’s possible to negotiate your total loss settlement — but be prepared for some work.

First, you’ll need to estimate how much your vehicle is worth, ideally through a certified mechanic. You can also use free valuation tools from industry guides like Kelley Blue Book or J.D. Power. Be sure to keep copies of the mechanic’s estimate or print off the values you find online, as you’ll need to show these to the adjuster.

You can also show the adjuster used cars for sale in your area, as the average price is location-dependent. Just know that your vehicle’s value is specific to its year, make, model and condition, so this isn’t always a perfect comparison.

If the insurance company’s adjuster still isn’t budging from their original valuation, you can hire a public damage adjuster — an independent adjuster who works for you, not the insurance company. They will perform their own assessment of your vehicle and handle the claim on your behalf. This option does come at a cost, so crunch the numbers to be sure the expense is worth it. There’s also no guarantee that their valuation will differ from the insurance company’s.

How do I buy a new car after a total loss?

After you’ve dealt with the immediate aftermath of the accident (such as tending to injuries and filing a police report), it’s time to get the ball rolling with your insurance company to get you back on the road as soon as possible.

Report and track your claim with the insurance company

It’s important to file your claim while the details are still fresh in your mind. The insurance company handling the accident probably has several ways to report and track your claim — common options are online, on a mobile app, over the phone or in person. Choose the one that most appeals to you.

You may also want to create a folder to keep your claim documents organized. Save contact information for all the parties involved, as well as police reports, pictures and estimates.

Call your current lender

If you still owe on your totaled vehicle, you should call your current lender (also called the lienholder) to let them know about the accident.

File a GAP insurance claim

If you have GAP insurance, now is a good time to make a claim. The claims representative will determine whether coverage applies. If it does, you have an upside-down car loan.

Guaranteed asset protection, or GAP insurance, will pay off the balance of your car loan if you owe more on it than the vehicle is worth. Many car buyers add this as a standalone coverage directly through the dealership, while others include it as an endorsement on their car insurance policy.

Review your payout amount

It can take a few days to a few weeks for the insurance company to settle your claim — it depends on the complexity of the accident and the availability of adjusters in your area. If your car was damaged in a severe local storm, for example, the timeline could be longer since the insurance companies will receive a high number of claims from other affected drivers.

Once your claim is settled, the insurance company will present your payout amount. You can choose to accept it or to negotiate, as discussed above.

Accept your claims check and go car shopping

If you’re satisfied with your payout, it’s time to shop for a new car. Before heading to the car lot, it’s a good idea to research auto loan rates and use our auto loan calculator to get an idea of what you can comfortably afford.

Can I buy a new car after a total loss if I have bad credit?

You should be able to buy a new car after a total loss if you have bad credit, but your options may be limited.

Depending on your credit score, you might only qualify for bad-credit car auto loans. While this type of financing plays an important role for subprime borrowers, you’ll likely face higher-than-average APRs. On the plus side, your claims payout check could make for a hefty down payment, which may make lenders more willing to work with you.

If your payout isn’t enough to pay off your current car loan and also provide a down payment for a new car, you could explore lenders that offer bad credit car loans with no money down. Again, APRs here will be high, but probably still lower than what you’d find at a buy here, pay here car lot, which should be avoided.

You could skip financing altogether by buying a car with cash using your insurance check. This, of course, depends on the amount the insurance company paid for your total loss and your flexibility when shopping for a vehicle.