Totaled Upside-Down Car Loan: What to Do With It

Having your car totaled is bad enough, but having an upside-down loan is even worse. This will explain what happens in this event and how to make the best of it.

What Happens When Your Car is Totaled?

If you are in an accident, then repairs will be needed. Normally your insurance company would pay for it after your deductible, but they may total the car if the repairs exceed the value of the car. The current value of the car, which takes depreciation into account, will either be paid to you if you own the car or the lender if the car is financed.

In either case, the insurance company is basically saying that the repairs are too much and they will only pay for the value of the vehicle.

What Happens if the Car is Financed?

If the car is financed and the loan is good, then the insurance check should pay off the remaining loan. If you have an upside down auto loan, then you might still owe money after the car is totaled.

Consider this situation. The loan is $15,000, but the car is only worth $10,000 and you have a $1,000 deductible. This means that the insurance company would pay $9,000 and you would be stuck paying the extra $6,000 to the lender.

Gap insurance can help as it may pay the entire different or most of it. Consider this if you have an upside-down loan.

Is Insurance Still Required on a Totaled Car?

This is a unique situation. Usually a totaled car is considered undrivable. The car technically no longer belongs to you and doesn’t need insurance. At the same time, you can speak to your insurance agent to keep the car. Be sure to speak to your insurance agent at this point to see if insurance is needed at all.

What if You Still Owe Money?

The problem with upside-down loans is that you still owe money on the car even though it’s totaled. While gap insurance might help, chances are that you don’t have it. In this case, it’d be best to speak to the lender directly. According to Lantern by SoFi, “there may be repayment or refinance options you wouldn’t have otherwise been aware of.”

In the worst-case scenario, you will simply have to pay the remaining balance even though your car is totaled.

Can You Keep a Car That’s Totaled?

This is a tricky question. Normally the car is auctioned off as salvage and considered undrivable. You might be able to keep the car depending on state laws, but you cannot get plates until the car is repaired. Another problem is that insurance companies might be unwilling to insure it as they might see the repaired car as too much of a risk.

So while it is possible to keep the car, there are many headaches to consider before it’s drivable again.

If you’re in an inside-down car loan and your car is totaled, then you have a few options. While gap insurance might be the best, this is also a great time to speak to your lender or to refinance the loan for a better rate.

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