My Car Was Totaled But I Still Owe Money On It
Written by : Ray Pierce
Last Updated: 02/03/2024

A quick overview of the topics covered in this article.

My Car Was Totaled But I Still Owe Money On It: What Now?

Person standing in front of a totaled car that still has a lien

If you still owe money on the car, the insurance payout will go towards paying off the remaining loan balance. However, in some cases, the insurance payout may be less than what you owe, resulting in a shortfall.

Having your car totaled can be a challenging and frustrating experience, especially when you still owe money on it.
A totaled car, also known as a total loss, refers to the condition of a vehicle when the cost of repairs exceeds its actual cash value (ACV) or its market value. In other words, the cost to bring the car back to its pre-accident condition is higher than what the car is worth. Generally, if the repair costs exceed a certain percentage (often around 70-75%) of the car’s ACV, it is deemed a total loss.

What is a Totaled Car?

A totaled car, also known as a vehicle that has been severely damaged to the point where it is deemed uneconomical to repair, falls under the definition of a totaled car. Insurance companies have specific criteria for determining whether a car is totaled. The most common definition is when the cost of repairs exceeds a certain percentage of the car’s actual cash value (ACV), which is also known as the Definition of a Totaled Car. This threshold varies by insurance company and state but is typically around 70-75%.

Factors that Determine if a Car is Total Loss

1. The extent of damage: If the cost to repair the car exceeds a certain percentage of its pre-accident value, usually around 70-75%, it is considered totaled.

2. Market value: The market value of the car plays a crucial role in determining if it is totaled. If the car’s value is already low or depreciated significantly, even a minor accident can result in totalling.

3. Insurance company’s policies: Each insurance company may have different guidelines for determining if a car is totaled. They consider factors such as the age of the car, its condition, and the cost of repairs in relation to its value.

4. Salvage value: The salvage value represents the worth of the damaged car if it is sold for parts or rebuilding. If the salvage value is too high, it can contribute to the decision of whether a car is totaled or not.

Pro-tip: Before purchasing a new car, consider its depreciation rate and market value. This can help you assess whether the car is more likely to be totaled in the event of an accident. Understanding your insurance policy and the factors that determine if a car is totaled can help you make informed decisions and avoid unexpected financial setbacks.

4 Options for Dealing with a Totaled Car and Owing Money

When your car is totaled and you still owe money, it can feel like being stuck between a rock and a hard place. But fear not! There are options available to help you navigate this situation. From paying the difference out of pocket to utilizing gap insurance, negotiating with the insurance company, and even refinancing your remaining loan balance, we’ll explore various paths in this section that can help you find a way out of this financial dilemma. Let’s dive in and discover the best course of action for you.

1. Paying the Difference Out of Pocket

When your car is totaled, one option for dealing with the situation is to pay the difference out of pocket. This means that you would cover the remaining amount that is owed on your loan after the insurance company pays their assessed value for the car. It is crucial to consider your financial situation before choosing this option.

If you opt for paying the difference out of pocket, you will need to calculate the precise amount you owe on the loan. This can be accomplished by contacting your lender and requesting a payoff statement. Once you obtain this amount, you can compare it to the insurance payout to determine the difference that you need to cover.

Paying the difference out of pocket can impose a significant financial burden, particularly if the amount is substantial. It is vital to assess your ability to comfortably afford this payment without putting yourself into financial strain. You may need to consider factors such as your savings, monthly budget, and other financial obligations before selecting this option.

It is important to note that paying the difference out of pocket does not alter the fact that your car is totaled. It simply enables you to settle the remaining loan balance and potentially move forward without any outstanding debt on the car.

Take into account your financial capabilities and carefully consider the advantages and disadvantages before making a decision about paying the difference out of pocket for your totaled car.

2. Use Gap Insurance

When faced with the situation of a totaled car and owing money, it is worth considering the option of utilizing gap insurance. Gap insurance is car insurance and is designed to provide coverage for the disparity between the actual cash value of your vehicle and the remaining balance on your loan. Here are some essential points to take into account when it comes to the utilization of gap insurance:

  1. Protection against financial loss: By using gap insurance, you safeguard yourself against potential financial loss by bridging the “gap” between the value of your car and the amount you still owe on your loan.
  2. Peace of mind: The inclusion of gap insurance grants you peace of mind, ensuring that you won’t be burdened with a substantial debt in the event of your car being totaled and the insurance payout falling short of your outstanding balance.
  3. Avoiding out-of-pocket expenses: In the absence of gap insurance, if your car is rendered a total loss, you may be held accountable for covering the remaining loan amount directly from your own pocket. Gap insurance effectively prevents you from bearing this financial burden.
  4. Leased or financed vehicles: Gap insurance proves to be particularly valuable for individuals who have leased or financed their vehicles as it provides additional protection in the case of a total loss.
  5. Negotiating power: When you possess gap insurance, you gain greater negotiating power with your insurance provider since you have an extra layer of coverage that supports your claim for fair compensation.

Using this special type of car insurance can be a wise and beneficial choice when dealing with a totaled car and remaining debt. It offers both financial protection and peace of mind, allowing you to avoid potential out-of-pocket expenses and enhance your ability to negotiate effectively with insurance companies.

3. Negotiating with the Insurance Company

When negotiating with the car insurance company, it is crucial to be proactive and assertive throughout the process of dealing with a totaled car. It is important to provide all necessary documentation, such as the accident report, photographs, and repair estimates, to support your insurance claim. Additionally, clearly communicate the value of your vehicle based on its condition before the accident, including any recent repairs or upgrades. Use factual evidence and market research to justify your desired settlement amount, and present comparable vehicles for sale in your area to demonstrate the fair market value. Moreover, emphasize any personal injuries, emotional distress, and inconveniences caused by the accident.
Communicate the impact it had on your daily life and how it has affected you financially and emotionally. It is essential to be open to negotiation and willing to provide any additional information or documentation requested by the insurance company. Remember, you have the right to dispute the insurance company’s initial offer if you believe it does not adequately compensate you for your totaled car. Maintain clear and respectful communication throughout the negotiation process to increase your chances of reaching a fair settlement.

4. Refinancing the Remaining Loan Balance

owing money on car

Refinancing the remaining loan balance after a car is totaled can be a viable option for many individuals. By considering refinancing the remaining loan balance, you have the potential to lower your monthly payments and make them more manageable. Here are some key points to keep in mind when exploring the option of refinancing the remaining loan balance:

  1. Interest rates: It is essential to check the current market rates for auto loans and compare them to your existing loan. If the rates have decreased since you originally financed your car, refinancing may present you with an opportunity to obtain a lower interest rate.
  2. Loan term: When refinancing, it is worth considering extending the term of your loan. Doing so can help decrease your monthly payments, making it easier for you to pay off the remaining loan balance over a longer period of time.
  3. Lender options: It is crucial to research different lenders and their refinancing terms. Take the time to compare their interest rates, fees, and repayment options. Select a lender that provides favorable terms and conditions that align with your financial situation.
  4. Credit score: Your credit score plays a significant role in determining your eligibility for refinancing and the interest rate you may qualify for. Prior to applying for refinancing, it is beneficial to take steps to improve your credit score.
  5. Payment history: Demonstrating a strong payment history on your existing loan can enhance your chances of securing favorable refinancing terms. Lenders look for responsible borrowers who consistently make payments on time.

Remember, it is important to inquire about refinancing options for totaled cars from lenders in advance, as not all lenders offer this service. Refinancing the remaining loan balance can provide a means to better manage your finances and alleviate the burden of outstanding debt.

The act of refinancing the remaining loan balance is a popular strategy among individuals who have faced a situation where their car is totaled. By taking advantage of lower interest rates and flexible loan terms, borrowers can alleviate their financial burden and avoid defaulting on their loan. Refinancing presents an opportunity to reassess and modify the loan agreement, enabling borrowers to regain financial stability and move forward with confidence. It is crucial for individuals to thoroughly research and compare refinancing options from various lenders to ensure they make the best decision for their specific circumstances.

Frequently Asked Questions

What happens if my car is totaled but I still owe money on it?

If your car is deemed a total loss by your insurance company, you are still responsible for paying off your car loan or lease. The insurance settlement check will usually be sent to the lender first to pay off the remaining balance, and any remaining money will be given to you.

What is the 80% rule for determining if a car is considered totaled?

The 80% rule is a formula used by insurance companies to determine if a car is considered totaled. If the cost to repair a car after an accident exceeds 80% of its value, the car will be declared a total loss.

What is gap coverage and how can it help me?

Gap coverage is an insurance add-on that protects drivers from having to pay out-of-pocket in the event of a total loss. It covers the difference between the actual cash value of the car and the remaining balance on a car loan or lease. Gap coverage can pay up to 25% of the actual cash value of a totaled car.

Do I need gap coverage if I owe less than the car is worth?

If you owe less on your car loan or lease than the car is worth, you may not need gap coverage. In this case, the insurance settlement should be enough to cover the remaining balance and you won’t be left with a financial burden.

Should I consult with a personal injury lawyer after my car is totaled?

If you are unsure about your insurance coverage or if you believe you are not being fairly compensated for your losses after a car accident, it is recommended to consult with a personal injury lawyer. They can help ensure you receive the compensation you deserve for medical bills, lost wages, and property damage.

Can I keep my totaled car if I still owe money on it?

Yes, you can choose to keep your totaled car even if you still owe money on it. However, the insurance company will deduct the salvage price from the settlement. This means that the amount you receive will be reduced by the value of the car in its damaged state.

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Written by : Ray Pierce

Ray Pierce founded Zippy Cash for Cars in 2001 and has been in the automotive industry buying cars ever since. Starting off with 2 employees, Ray is proud to now have over 50 employees buying cars coast to coast.