what happens when your car is totaled and you still owe

What Happens When Your Car Is Totaled and You Still Owe Money?

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Nobody willingly signs up for the car accident experience. Unfortunately, car accidents are an unpleasant reality of modern life that you ought to prepare yourself for. Part of being ready for a car accident is knowing how to handle a variety of different outcomes. One common consequence of a car accident is that your insurance company deems your car a total loss. There are many misconceptions about what a totaled car means for its owner/leaser, so it is essential to get clear on the facts.   

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When Is a Car Considered a Total Loss?

It is critical to understand that when an insurance company determines that your car is totaled, their judgment is not based solely on the extent of the damage to your vehicle nor that value of your car post-crash.      

A car is usually determined a total loss when the cost of repairing a vehicle exceeds a vehicle’s current value. Some states have laws that slightly alter the total loss conditions; for example, a state might have a law that classifies a total loss as a car where its cost of repair exceeds 80% of its current value.

Related: If My Vehicle’s Frame Is Damaged, Is It a Total Loss?  

What to Do When the Car Is Totaled:

So your car is totaled. What’s next?

Locate Your Vehicle’s Title.

If you own your vehicle outright, then it is essential that you locate your vehicle’s title. You will use the title to prove to your insurance company that you owe nothing on the car.

What If You Don’t Own Your Car Outright?

If you do not own your car outright, then make sure your insurance company has the contact information of the financing company you’re using. Before your insurance company can cut you a check, they will need to pay the financing company.

Find a Trustworthy Auto Body Shop.

Try to find an auto body shop that you and your insurance company trusts. The auto body shop that you select will determine your vehicle repair costs.

Related: Do I Have to Take My Car to a Shop the Insurance Company Recommends?

Independently Research your Vehicle’s Value.

Do not blindly accept your insurance company’s evaluation of your vehicle. Make sure to think critically about whether there is anything that increases the value of your car that your insurance company is ignoring. If you can improve what your insurance company perceives the value of your vehicle to be, then you increase the amount of money in your pocket.  

Related: Do I Have to Fix My Car With My Insurance Payout?

Establish a Clear Line of Communication with Your Insurance Provider.

Try to form a friendly and professional line of communication with your insurance company and claims adjuster. Use the clear line of communication that you establish with your provider to make a compelling case for why your vehicle is worth what you believe it to be worth based on your research.     

Can You Keep Your Car If It’s Totaled?

If you own your car outright, then yes. Otherwise, your financing company will determine whether you can keep the car.

If your car is totaled, then your car title is branded with a salvage title, but you can still keep your vehicle. Sometimes keeping a totaled car makes financial sense, and other times it does not. If you’re considering keeping your salvaged car for financial reasons, then you should think about your initial car repair costs, whether you will be able to get your car to pass an inspection, and potential problems with finding an insurer.

It is also important to keep in mind that a having a salvage title will automatically reduce the value of your vehicle.

What Does Insurance Pay When Car Is Totaled?

When your car is totaled, your insurance company should follow your policy terms as it relates to determining your payout. Usually, an insurance company considers some mix of the pre- and post-accident value of your car minus your deductible.  

Remember, if you do not own your car outright, your insurance company will pay the financing company first.

What Happens When Your Car Is Totaled and You Still Owe Money?

Unfortunately, if you still owe money on your vehicle after your insurance company pays out to the financing company, then you are liable for the remaining balance. If you think you might be in this situation, then you have an excellent reason to ensure that your insurance company is fairly appraising your car.

Also, there are insurance policies that include coverage for the gap between what you owe on your car and what the insurance company will pay out. You should consider the pros and cons of paying for gap coverage before you get into an accident.  

Car accidents are a horrible reality of modern life. While dealing with a car accident is unpleasant, understanding your situation and advocating for yourself are great ways to find financial and emotional relief.

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