"If your vehicle is totaled, are you still obligated to pay off your car loan? "

I'm waiting to hear back from my insurance adjuster on whether my car is a total loss. I still owe some money on my car loan. If the car is totaled, does the loan still stand?

“Yes, you are still obligated to pay off the loan. A total loss doesn’t change the fact that you borrowed money to buy the car, and the lender has the right to expect their payments. So what happens in this situation?
First, a definition: “totaled” means that the estimated cost to repair the car is at least 80% (industry benchmark; may vary slightly) of the current value of the car. So if your car is worth $5,000 and the repairs are estimated to be $4,000 or more, the insurance company considers the vehicle to be a total loss and pays you the value of the vehicle at the time of the accident.
Depending on how long you have been paying the loan, and how much the car has depreciated, you may find yourself with an insurance payment that doesn’t cover the full amount you owe on your loan. You will still need to pay the amount you owe, even if the insurer gives you less for your totaled car. You will need to cover the “gap.”
This is where gap insurance comes in. It’s an optional form of car insurance coverage that covers the difference between your car’s value and what you owe on a car loan. If you don’t have gap insurance or the money to cover the gap, then you can pay down the old loan with the settlement from the insurer and get the gap amount added to the new loan when you buy your new car. “
Jim Donaher
Answered on Apr 05, 2021
Jim Donaher is a freelance writer and manager with over 35 years' experience in the insurance, banking, and investment management businesses. He provides expertise on a range of topics and is able to explain complex industry information in layman's terms. Jim is the author of two books, including Call Him, He's Home: A Guide to Prayer for Regular People and Then Larry Smiled, a novel about life, death, accountability, and salvation. Taormina, Sicily is his happy place!

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