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My Car Is Totaled and I still Owe Money: Next Steps

My Car Is Totaled and I still Owe Money: Next Steps

‘My car is totaled’ is a reality that few drivers ever want to face. However, having a vehicle ruled a total loss is a common experience for many people involved in accidents. What adds to the trauma and shock of dealing with a collision is having to figure out how to cover the continuing car payments. Then there’s the cost of a rental, purchasing a new car, and rising insurance rates. Although you haven’t willingly signed up for this experience, it is up to you to find a solution. The info below can help you prepare for possible outcomes.

What Is A Total Loss?

Lots of damage that can be seen with the naked eye does not necessarily mean your car is totaled. In the same sense, just because your vehicle looks fine after a crash does not mean all is well. If the cost to repair a vehicle is more than the car or truck is worth, insurance companies will usually rule it a total loss. This is actually occurring a lot more frequently in the past because of the rising cost of repair parts.

My Car is Totaled But I have Some Equity in It

Let’s look at an example:

Let us say that you own the most commonly purchased vehicle in Arizona, a Ford F150. A teenager is texting and driving and slams into your vehicle. Although you were not at fault, your truck suffered a ton of damage. You have your vehicle towed to a local body shop.

After receiving the repair estimate, the insurance company informs you that they have decided not to repair your vehicle. Instead, they will send you a check for what the truck is valued at today. If you don’t owe anything on the vehicle, the money is yours and can be used for whatever you want. For example, you might want to purchase a new truck outright or pay down on another vehicle.

Although this is an ideal situation, it is the exception, not the rule. What is more common is that after realizing ‘my car is totaled’, you also remember that you still owe money to the bank. In this case, the insurance company will send the payout directly to the lender. If you have equity in the vehicle, the lender will send you the amount of money left over after the loan is paid off.

So, if your vehicle is worth 15,000 dollars and you only owe 10k, you will receive a check for 5k.

My Car is Totaled and I Owe More Than It’s Worth

The situation changes greatly if the sentence ‘my car is totaled’ is followed by ‘I owe more than it is worth’. This is known as being ‘upside down’ or ‘underwater’ on your car loan. This means that although you still owe money to your lender, your vehicle’s value is under that amount.

Let’s go back to our 15k example. If your truck is worth 15,000 dollars and you owe 18,000 dollars, the insurance company is only going to send 15k to your lender. You will be on the hook for the remaining balance and required to pay off the loan, even though you no longer have the vehicle.

An exception to this situation is if you purchased ‘gap insurance’ when buying your vehicle. Gap coverage is highly recommended because it requires the insurance company to pay off the entirety of your loan, regardless of the vehicle’s value.

Next Steps

If you owe more than what your vehicle is worth, you have a couple of options. First, check to see if you have gap insurance to cover the payoff. If you aren’t covered, ask for a second opinion from another body shop. A change in repair estimate might change the outcome of the insurance company’s determination.

We at Orlando Autobody will provide you with a repair estimate at no cost. Give us a call at 480-351-2369 or fill out a request online.

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