How to Pay Off an Auto Loan After a Total Loss

There are several reasons why an insurance company might declare your vehicle a total loss after an accident. For example, your vehicle may be considered a total loss if it cannot be safely restored; if the cost of repairs exceeds the car’s fair market value; or if state law requires your insurance company to declare your car a total loss.

How Do I Receive Compensation for a Total Loss?

First and foremost, you will need to file a claim with your insurance company. However, in order to receive compensation for a totaled vehicle, you must have purchased coverage prior to the accident. For example, if you only have liability insurance, you will not be reimbursed by your insurance company. Comparatively, if you have collision or comprehensive insurance, you will be able to receive compensation for a totaled vehicle.

Before your insurance company will provide compensation for your total loss, you must give them the title to your wrecked vehicle. After you submit all necessary documentation to the insurance company, they will issue you a check for the fair market value of your vehicle. Your insurance company calculates the fair market value of your vehicle based on engine mileage and the overall condition of the vehicle prior to the accident.

Will I Still Have to Make Auto Loan Payments on a Totaled Car?

If your car has been declared a total loss by your insurance company, they must provide you with compensation for your vehicle (provided you have adequate insurance coverage). However, they only need to provide compensation up to the fair market value of your vehicle. Meaning, your insurance company has no obligation to pay off your auto loan on the totaled vehicle.

Therefore, if you are ‘upside down’ in your vehicle loan (meaning you owe more than your car is worth), you will still have to make payments on your previous auto loan. Furthermore, if your totaled car had a loan on it, the insurance company will issue the compensatory check to the loan-holding agency. After this check has been applied, any remaining funds will be distributed to you by the loan-holder.

How GAP Insurance Can Help Pay for a Total Loss

GAP insurance can help pay the remainder of your auto loan; paying the difference between the fair market value of your totaled vehicle and the amount remaining on your auto loan. However, you must have purchased GAP insurance prior to your accident.

When Should I Purchase a New Vehicle After a Total Loss?

Before you begin thinking about purchasing a replacement vehicle, make sure your previous auto loan (if applicable) has been completely paid off. Some lenders may refuse to help you finance another vehicle if your previous auto loan is active. Furthermore, doing so will help you avoid being ‘upside down’ in your auto loan.

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