What Happens When Your Car is Totaled, and You Still Owe on the Vehicle?

At Quanz Auto Body, we know that getting into a car accidentis bad enough. It just adds inconvenience and hassle to be without your carwhile it’s being repaired. But what about when your car is beyond repair—whatthen? And worse, what happens when you still owe on a car that can’t berepaired? Unfortunately, if your car is totaled and you still owe on it, youcould be stuck with a car payment on an undrivable car.

When a Totaled Car Isn’t

When you hearthe word “totaled” or “total loss,” you think about a car beyond damaged beyondrepair. That isn’t always the case. More often, your vehicle could be repaired—it’s just that thecost of repairs is more than your vehicle is worth.

For example,say your insurance company values your car at $8,000 but repairs after anaccident would cost $10,000. The insurance company will deem your car a “totalloss” and will not pay for any repairs. Instead, they will pay cash for thevalue of your car (minus your deductible). If your deductible is $1,000, youwould end up getting a check for $7,000.

When You Still Owe

Unfortunately,an accident does not cancel out your car loan. That $7,000 would go directly tothe bank to help pay off your debt. If you owed less than $7,000—great! Yourloan’s paid off and you may have a few hundred to put down on a new vehicle.

But, if you owemore than your car is worth, you will have to continue to make monthly paymentsfor a car you don’t even have anymore. It’s not a great situation but one thatmany people find themselves in since car loans now average 60 months to payoff.

Really, there’snot much you can do in this situation. Some states require that the insurancecompany reimburse your for the sales tax of your car, giving you a little bitof extra cash, but New Mexico is not one of them.

When You Have Gap Insurance

Your story mayhave a bit of a happier ending if you have gap insurance. Gap insurance willhelp you pay off your car loan in the event your car is totaled and you stillowe on it. However, it won’t help you put money towards a replacement, so youare still out a functional vehicle.

Whether or notyou have gap insurance, you can choose to keep your car even if it’s been“totaled.” In this case, your car will have a “salvage” title, which means youcannot apply for new plates until you’ve made repairs…and you may be payingcompletely out-of-pocket to have those done. If your car was damaged soseverely that it was totaled in the first place, it’s more likely than not thatit’s not safe to drive in the meantime.

So, here’s themoral of the story: to avoid getting in a situation where an accident may leaveyou with a hefty bill but no car, carefully consider your car purchase. Inaddition to the retail price, also keep in mind:

  • Thelength of loan terms needed to make payments manageable
  • Estimateddepreciation of the vehicle

These factorswill help you determine if a long-term car loan is really your best option. Andif you have any questions about your repairing damage to your car, or if youneed an estimate, we’re here to help! ContactQuanztoday!