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What Happens if You Crash Your Financed Car?

May 11, 2022Car Accidents

Car accidents are always unexpected, but no matter how severe, if you are in a financed vehicle, you are still responsible for paying the remainder of the loan. The good news is that you have to have auto insurance to finance a car, so you probably have some amount of coverage to pay for the repairs.

If You Have Insurance

Most lenders require you to maintain full auto insurance coverage for the life of the loan. That includes comprehensive, collision, and liability coverage. As long as your policy hasn’t been canceled due to nonpayment, you can file a claim with your insurer under your collision coverage. It will pay for the damage to your vehicle up to your policy limits. However, you will be responsible for your deductible. If your insurer determines another party was responsible, they will attempt to recover compensation for the benefits they paid and your deductible.

If You Don’t Have Insurance

If your insurance coverage lapsed when the accident with your financed vehicle occurred, you may be responsible for the damage out-of-pocket. If another driver was to blame, you should be able to file a claim with their insurance company to pay for your vehicle’s repairs. However, it will be challenging to recover full compensation, especially if you were uninsured. Additionally, you could lose the car to the lender you signed a contract with if they discover you don’t have full coverage on your financed vehicle.

What Happens if My Financed Car Is a Total Loss?

After your accident, your insurance company may decide your car is a total loss if the costs of repairing it are higher than its value. For example, in Missouri, a car is considered a total loss if the repairs plus the salvage value is at least 80% or more of the vehicle’s actual cash value (ACV). ACV refers to your car’s worth immediately before the accident, while salvage value is how much the car is worth afterward. If your insurance company totals your financed car, they will determine its ACV and send a check for its value to your lender. The better the condition and newer the car, the more it will be worth. Your lender will send you any money left over once your loan is paid in full. However, if you owe more on your loan than the car is worth, you will still be responsible for the difference.

Gap Insurance

Guaranteed asset protection, or “Gap” insurance, is an optional form of insurance coverage, but some lenders in Missouri require customers to carry it. If you happen to go upside down on your car loan, which means it is totaled and the amount left on your loan is more than your vehicle is worth, gap insurance will bridge the gap. In other words, you will not have to pay out-of-pocket for the difference that you owe on the loan. As a result, you may end up only having to pay for your deductible if your financed car is totaled in an accident.

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