What happens to my car loan if my car gets totaled?
I was in a car accident yesterday and my car was totaled. I've already talked to my insurance company, but I haven't talked to my bank. What happens to my car loan?
Sorry to hear about your accident. Things are probably super stressful now, but they will get better!
When you’re in a car accident, you’ll get an insurance payout you can use to pay your car loan if your car gets totaled.
Either your insurance company or the other party’s insurance company will provide this payout, depending on who was at fault for the accident. The amount of the payout will reflect the value of the car, as calculated by the individual insurer. Therefore, the payout may or may not cover the entire outstanding balance of your car loan.
If the balance on your car loan is less than the payout value, you can pay off your loan in its entirety and can pocket the rest of the money—or put it toward a new car.
If the balance on your car loan is more than the actual cash value of your car, the payout will cover part of the loan and you’ll be responsible for paying the rest.
In the latter scenario, this can create a financial burden. As a result, you may want to consider gap insurance, which covers the difference between the loan balance and your payout after an accident.
Keep in mind that you may receive no payout at all if you’re at fault in an accident and you only have liability coverage. Consider adding collision coverage to your insurance policy to avoid repeating that fate in the future.
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MORE: Collision coverage
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