What is a 'Total Loss' Vehicle?

What is a 'Total Loss' Vehicle?

It can be very frustrating to have your vehicle totaled in a car accident, and if you financed the car and you still owe money on the auto loan, that can make matters worse. Here, we explain the scenario where an insurance company has deemed a car a “total loss” and what that means if you still owe money on the auto loan.

In some car accidents, the vehicle damage was minor enough that a visit to the repair shop will suffice. But in other cases, an insurance company looks at the damage and decides that the car is a “total loss.” Sometimes, it only takes a split second or “one look” at a car to know it’s beyond repair. If you have ever seen a car that was completely smashed in a car accident, you get this one.

Since each auto insurance company has its own method for calculating when a car is a total loss, we’re not going to get into the specifics of what determines if a car is a total loss, but we will discuss the issue of a remaining balance on an auto loan after an insurance company has decided a car is totaled.

When You Owe Money on the Car

As we all know, cars depreciate the moment you drive them off the lot. They also depreciate with every passing day, and every mile we put on them. If you think your car is worth the same as what you owe on the auto loan, that’s not necessarily the case.

A lot of people mistakenly believe their car is worth the same as what they owe on their auto loan. While sometimes it’s close, the car can be worth less or more depending on a number of factors, such as the year, make, and model of the vehicle, and its market value.

In the best-case scenario of a total loss, the plaintiff will receive a check from the insurance company that is more than the balance of the auto loan. If you’re lucky, you get enough money to pay off the auto loan, and you get to pocket a few bucks that you can put toward a down payment on a new car.

But what if you owe more than the car is worth? What if the insurance check is less than the balance on your auto loan? Unfortunately, you’re still on the hook for the balance on the auto loan. Even if your car was totaled in a crash that was not your fault, you’re still legally obligated to pay your monthly payments on the auto loan until it’s fully paid off.

Next: Car Accident Police Reports in Texas

When available, we recommend “gap insurance,” which will often pay the difference between the insurance company’s check and what you still owe on the auto loan. If you don’t have gap insurance, we recommend contacting your insurance agent about it.

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