What Happens When Your Car Is Totaled?
When you’re in an accident and the cost to repair your car exceeds its value (or it’s damaged beyond repair), the insurance company will declare the car a “total loss” and pay you its entire value.
What happens if you still owe money on the car? In most cases, you will be responsible for paying the loan.
What to do when your car is totaled and you still owe money
Your insurance company decides if and when to declare your car a total loss — usually if the price to repair is more than half what the car is worth.
When the car is totaled, the insurance company will pay you its value minus any deductible. The money may go to you or to your lender listed on the title.
While the paperwork is being sorted out, you need to continue to make the loan payment. Depending on the lender, you may owe the balance of the loan immediately when the car is declared a total loss.
Get the actual cash value (ACV)
Unfortunately, insurance settlements are based on the actual cash value (ACV) of your car on the market, not how much you owe on the loan. Your insurance payout may be less than the amount you owe, which is common on newer cars because of depreciation.
The insurance company will determine the actual cash value by looking at the sale price of similar vehicles in your area.
You can use online tools like Kelley Blue Book or J.D. Power to research the prices of exact vehicle matches. If your insurer offers you less than the market price, you may be able to negotiate for a higher payment, maybe based on low mileage or special features.
Contact your insurance provider
If you have a car accident, contact your insurance provider as soon as possible to begin the insurance claims process.
How much your insurance company pays depends on the type of car insurance coverage you had at the time and who is considered at fault in the accident.
Insurance coverages
- Comprehensive: Protects your vehicle from damage outside of your control, like a collision with an animal, a falling tree branch or theft.
- Collision: Pays to repair or replace your car after an accident with another vehicle or object while driving.
- Uninsured motorist and property damage: Some uninsured motorist coverage only pays for treatment of injuries from a car accident. However, uninsured motorist property damage will also cover damage to your car.
Keep in mind deductibles usually apply for each type of insurance. If your car is totaled at a value of $10,000 but you have a $500 deductible, you’ll receive $9,500.
Full car coverage combines liability, comprehensive and collision coverage and may include uninsured motorist protection and other features. It’s usually required if you have a car loan.
Collision coverage takes care of damage to your car, although if the other driver is at fault, that driver’s liability coverage will pay your car’s ACV.
However, as mentioned above, the ACV will not always be enough to cover the balance of the car loan.
Contact your lender
If your car is totaled, contact your lender to learn how much you still owe. The insurance company may handle the valuation and transfer the payoff amount directly with your lender.
Compare your estimate of the car’s ACV with the loan payoff to see if you are upside down on the loan (that is, you owe more than the car is worth).
You may be asked to sign a limited power of attorney to allow the companies to file the necessary paperwork, such as a title transfer.
What is GAP insurance?
GAP, or guaranteed asset protection, insurance covers any difference between your totaled car’s value and the loan amount you still owe.
For example, let’s say your car’s ACV after it’s totaled is $27,500, but you still owe $32,000 on the loan. GAP insurance will cover the remaining balance of $4,500.
You can buy GAP insurance from your lender, your insurance company or a third-party provider. Check with your existing car insurance policy to see if it is included.
GAP coverage is often required in new car leases, and it can be a good idea if you have an extended loan term or a small down payment.
What does GAP insurance not cover?
GAP insurance can come into play when your car is totaled or stolen, but it will not cover these costs:
- Car repairs and parts
- Entire cost of a new car
- Cost of a rental car after an accident
- Lost wages
- Medical bills
- Damage to another car or personal property
If you’re uninsured and facing a total loss on your car, you will have to pay the whole balance of the loan yourself. And if you are at fault, you may be responsible for paying for the other party’s damages or injuries.
Most states require a minimal amount of liability insurance to register a vehicle, so you could also get hit with penalties such as fines or a suspended driver’s license.
How do I buy a new car after a total loss?
Determining how to buy a car after a total loss depends on your insurance payout.
If the car is already paid for, you can put the entire settlement toward a new car.
If the payout based on the ACV is less than you owe on the car, you’ll have to pay off the loan first, or else roll over the balance into a new car loan.
Track your insurance claim
Report an accident to your insurance carriers as soon as possible. Most carriers offer a number of ways to make a claim and track the process: by phone, online, via a mobile app or in person at a local agent’s office.
Create a folder, either on a computer or paper, to organize the claim documents, such as accident photos, contact information, police reports and repair estimates.
The insurance company may take a few days to a few weeks to settle your claim, depending on the availability of adjusters in your area.
Call your current lender
If you think your car will be declared a total loss, reach out to your lender to let it know about the accident and ask about the next steps you should take.
Continue to make your loan payments until the insurance settlement is finalized — otherwise, you could become delinquent on your loan, which will hurt your credit rating.
Review your payout amount
It can take time to settle a claim, depending when an adjuster is available in your area. But once you learn what your payout will be, make sure to review it carefully.
Remember, you can negotiate the amount if you think the car is undervalued, but you should be able to back up your claim. You can point to low mileage and a good overall condition, as well as any special features your vehicle has.
Know that you probably won’t be able to recoup the cost of special modifications, like custom wheels and tires or performance upgrades, unless you have supplemental coverage on your policy.
If you’re still not satisfied with the payout, you can hire an independent damage adjuster to assess your car. But be aware that their valuation might end up being similar to the insurance company’s offer.
Go car shopping
After the insurance claim is settled, you can now shop for a new car to replace your totaled vehicle. You may have cash in hand from insurance, or you may be starting from zero.
As you go car hunting, be sure to compare financing offers from lenders. Research auto loan rates and use our auto loan calculator to get an idea of how much you can afford to spend on your new car.
Frequently asked questions
You can buy the totaled car from the insurance company, which will reduce the payout amount by the scrap value of the vehicle.
Depending on state regulations, you may have to get a salvage title for the car. You will have to make repairs, have it inspected by local authorities to ensure it’s safe to drive on the road and apply for a rebuilt title that will allow it to be registered.
The fact that your car was totaled shouldn’t affect your credit, so long as you keep up with your payments. Missing a car payment by 30 days could lower your credit score by as many as 80 points, which will make it harder to get financing for your next vehicle.
Your insurance company is unlikely to pay more than the car is worth, unless you have full replacement cost coverage. Normally, if your car is properly covered, the insurance will pay just the actual cash value minus the deductible.
GAP insurance will cover any difference between the insurance settlement and the amount of the loan balance.
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