If My Car was Totaled in an Accident, Do I Still Need to Make Payments?

Yes! If your car or truck was totaled in a collision, you need to inform your lender of the incident right away. Your vehicle is the collateral on their loan to you and they have a legal right to know it’s been destroyed. You also need to continue to make any regularly scheduled payments on the vehicle until the entire loan has been paid off.

It can take several weeks to determine liability for a collision and negotiate a fair price for your vehicle (insurance companies call that price the actual cash value). During that time, you will be responsible for making payments on your loan. Once the actual cash value has been agreed upon and a check has been issued, any payment from the insurance company for the value of the vehicle will be applied to the end of the car loan agreement. This means you are responsible for making all scheduled payments until the amount is completely paid off. You do not get any credit on the front end of the loan.

If the actual cash value of your vehicle is less than what you owe on your car or truck, GAP insurance coverage (also called loan or lease payoff coverage) purchased through your auto insurance carrier or the dealership where your car was purchased will cover the difference in price. Check the terms of your GAP policy, however, because some only pay up to 25% of the actual cash value towards the price difference. So, even with GAP coverage, you could be left to pay the bill if your vehicle is worth substantially less than the amount you owe.

For example, if you owe $15,000 on your car loan, but the at-fault driver only had $10,000 in property damage coverage AND you do not have GAP coverage, you must continue making your regularly scheduled payments until you pay off the remaining $5,000.

Imagine the same example, but with Gap coverage up to 25% of the actual cash value. The GAP coverage would cover $2.500 on top of the $10,000 provided by the property damage coverage. You would be responsible for the balance of $2,500.

Now, let’s look at the same set of facts but with full GAP insurance. Your GAP insurance will pay the remaining $5,000 on the loan after the property damage coverage provides the initial $10,000.

If you were injured in a car accident and need an attorney to help you navigate through the rules regarding vehicle repair or replacement and medical treatment, contact our team at 727-446-0840. We offer free consultations to all accident victims.