What Happens If You Total a Car That Isn't Paid Off?

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If you total a car that isn’t paid off, you could end up owing your lender more than your insurance settlement, unless you have gap insurance.
Unfortunately, the value of new vehicles depreciates quickly. When you factor interest into the equation, it isn’t uncommon for people to end up upside down on their car loans—owing more on the car than its actual cash value.
Car insurance comparison shopping and broker app Jerry has put together everything you need to know about what happens if you total a financed car.
Of course, if you don’t want to find yourself in this undesirable situation, Jerry can help you find cheap car insurance and coverage options that will keep you protected.
If you’re hesitant to switch plans or insurance providers because you’re worried about the work involved, don’t be. Jerry does all the paperwork for you. You’ll never have to print out anything, go to the post office, or get on the phone. Jerry handles it all—really!
So, read on to find out what happens if you wreck a financed car.
  • Totaling a car
  • I still owe money
  • Can I keep it?
  • Does insurance cover sales tax?
  • Finding cheap insurance
  • FAQs
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What does it mean when a car is totaled?

A car is considered totaled when an insurance company decides that it will cost more to repair than it is worth. State requirements differ, but the damage will almost always have to be more than 60% of the car’s actual cash value.
In this case, your car will be deemed a total loss and you will receive an insurance payout, minus your deductible.
The payout will cover the car’s cash value just before the accident up to your policy limit. For instance, if the actual cash value of your totaled vehicle is $20,000 and you have a $1,000 deductible, you will receive $19,000 as your payout.

What happens if you total a financed car

In situations where a financed car is totaled, and isn’t fully paid off, your insurance company will either give the payout directly to your lender or make out a cheque for you to sign off to your lender.
If you are not—upside down on your loan—a situation where you owe more than the car is worth—your insurance company will pay your lender for the amount you owe. You can keep the rest of the settlement for yourself.
For example, if you owe $5,000 on your loan, you would get to keep $14,000 of a $19,000 payout.
Unfortunately, it’s also possible to end up owing a lender money on a totaled car that you no longer own. Since the value of new vehicles depreciates quickly, it’s not uncommon to end up owing more than the car is worth if your car is less than half paid off. The same is true if you have a longer-term loan or high interest rate.
If you owe $22,000 on the $20,000 car mentioned earlier, your total payout of $19,000 would go to your lender—but you will still owe an additional $3,000.
To avoid ending upside down on your car loan, it’s a good idea to invest in gap insurance to help cover the difference if your car ends up totaled.
Key Takeaway If your insurance payout doesn’t cover all the money you owe and you don’t have gap insurance, you will have to make up the difference out of pocket.

Will I still have to pay insurance on a totaled car?

No. Once a car is totaled, it doesn’t belong to you anymore—so you don’t have to pay to insure it.
But once you purchase a new car, you’ll need to find a new car insurance policy to go with it. If you’d rather leave the hard work of gathering quotes to someone else, use Jerry. This free app can collect quotes from up to 45 top insurance companies in seconds!
This Jerry user was thrilled with their experience, giving the app five stars:
“My insurance rates nearly doubled for no reason six months ago, so I shopped around and found something a little cheaper. Fast forward to now, and Jerry found me a rock bottom rate with the same coverage with a great insurance company. All I had to do was give my phone number, and then Jerry jumped in and did the rest. Constant communication via push notifications and texts to let you know where you are in the process. You need to download this now. It’s awesome and puts $100 back in my pocket each month.” - Satisfied Jerry User

Can I keep my totaled car?

Maybe—but it’s usually not worth it. More often than not, insurance companies will simply auction off totaled cars.
In some states, you may have the option to repurchase the vehicle. If this is the case, the insurance company will ask their usual salvage buyers to put in some bids to determine a fair market value. The market value of your totaled car will then be deducted from your insurance settlement.
Once you make a total loss on financed car, many states require a salvage title. Vehicles with salvage titles are notoriously difficult to sell. The vehicle could be costly to repair and potentially dangerous to drive if the damage goes undetected. You’ll also pay higher insurance premiums and likely won’t be able to purchase collision or comprehensive insurance.
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Will car insurance cover the sales tax when replacing a totaled car?

In most cases, yes—but it depends on the specific insurance laws in the state where you live. If your sales tax is reimbursed, the value you are refunded for will cover the tax on your totaled car, not your new car.
If your state does cover you for sales tax when you purchase a replacement vehicle, your insurance company will reimburse you for the sales tax on your older totaled car. You may have to reach out to your insurance company to request this reimbursement, and some states have a 30-day time limit to do so.
Here are the total loss car insurance settlements and sales tax by state:
StateTotal loss car insurance settlements and sales tax
AlaskaNo state sales tax in Alaska. When the insurance policy provides for the adjustment and settlement of first-party auto total loss based on ACV or replacement with another of like kind and quality, the insurer must offer a comparable replacement a vehicle with all applicable taxes, license fees, and other fees paid.
ArkansasWhen the insurance policy provides for the adjustment and settlement of a first-party auto total loss, the insurer must either (1) offer a replacement auto with all applicable “taxes, license fees, and other fees” paid, or (2) make a cash settlement which includes all applicable taxes, license fees, and other fees.
CaliforniaInsurer must offer a cash settlement based upon the actual cost of a “comparable auto”, including all applicable taxes and other fees, or offer a replacement comparable auto including all applicable taxes, license fees, and other fees.
FloridaWhen the insurance policy provides for the adjustment and settlement of first-party auto total losses on the basis of ACV or replacement with another of like kind and quality, the insurer must pay sales tax.
GeorgiaInsurer must (1) offer a cash equivalent settlement based upon the ACV of a “comparable auto” including all applicable taxes and other fees, or (2) offer a replacement auto including all applicable taxes, license fees, and other fees.
KentuckyIf the policy provides for the settlement of first-party auto total loss, the insurer may elect to either (1) offer a replacement auto that is at least comparable including all applicable taxes, license fees, or other fees, or (2) offer a cash settlement based on the actual cost of a comparable vehicle, including all applicable taxes, license fees, or other fees.
New YorkInsurer is required to reimburse the insured with the ACV. This means either repairing the damaged item or replacing it with an item substantially identical including sales tax.
TexasMotor vehicle sale and use tax is not due when an insurer takes title to the vehicle as a result of a total loss. However, motor vehicle sale and use tax are due when the insurer purchases a replacement vehicle for the insured on a total loss claim.
Key Takeaway Check your state insurance laws to see if you’re covered for the sales tax on your replacement vehicle.

Finding the best insurance for a car with a loan

If you owe more on your loan than your car is worth, upgrading to gap insurance will help you avoid owing money on a totaled vehicle.
Even if you aren’t upside down on your payments, Jerry will still help you find the best policy at the best price.
It’s this simple: download the Jerry app and answer a few easy questions. In less than 45 seconds, Jerry collects all of your information from your existing insurer and presents you with three competitive quotes from the country’s top insurance companies. Pick the one you like best and Jerry takes care of the rest—securing your new policy and canceling your old one.
No long forms, no calling around, no hard work—just savings. The average Jerry user saves $879 a year on car insurance.

Frequently asked questions

Will totaling a car affect my credit score?

Not directly, but it could affect your score once your car loan is paid off. Eliminating one of your oldest and lowest loans might have a slightly negative effect on your credit score, while eliminating a loan that you still had a lot of money owing on may improve your credit score.

How do I get a new car after my old car is totaled?

You are free to shop for a new car as you please. Be sure to check in with your state requirements to find out if your insurance covers the sales tax on your new vehicle.
Using an intelligent insurance shopping tool like Jerry can help you save money on insurance so that you can open up space in your budget.
Jerry will generate competitive quotes from top providers in less than a minute. Jerry automatically gathers your information from your past insurer, so you’re not responsible for any long forms or phone calls. Basically, you get all of the savings and coverage, with none of the hassles.
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