What happens to my car loan if my vehicle is stolen?

Answered by Car Loans Expert Jim on April 7, 2021

There's been a series of car thefts in my neighborhood, and I'm worried that I could be targeted next. My car is financed. What will happen to the loan if my car is stolen?

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Car Loans Expert

“When you find out that your car has been stolen, you must first make a report to the police and then file a claim with your insurance company (the police report will be needed for the insurance claim).

Once you have taken these two steps, contact your lender and inform them that the car has been stolen. Realize that this is not for the purpose of loan forgiveness, since they are unlikely to offer it — but they need to know that the car, which was the asset that provided security to the lender in case you defaulted, is no longer in your possession.

Once they receive your claim, the insurance company will determine the value of the car and send you a check for that amount. Depending on where you are on the loan, this may or may not cover the full amount you owe to the lender. Early on in most car loans, the borrower is “underwater” since the value of the car depreciates faster than the borrower can pay off the loan.

In these cases, some lenders will write off the underwater amount and accept the insurance payout as payment in full. However, this is rare. More frequently, they will suspend payments and offer to add the amount owed to your next loan when you buy a new car. This is dependent on your creditworthiness and how much you are underwater on the stolen car.

This helps the lender retain a customer and close another loan while getting their money back. It helps you as the borrower to use whatever cash you have available for a down payment on a new car instead of paying off the old one. “

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