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What Happens When You Crash a Financed Car? Your Options

financing a car

What happens when you crash a financed car? It’s not a topic car owners want to discuss, but it is essential, especially if you’re owning or leasing a new car. When you crash a financed car, many things can happen.

What happens will depend on whether or not you paid off the car, the amount you have in gap insurance, who was at fault, and the value of your car at the time of the accident. Here, we’ll dive deep into your options if you crash your financed car.

You Crashed Your Financed Car

Let’s imagine a scenario in which you end up in an accident, causing significant damage to your vehicle. Understandably, this scenario is likely to induce high levels of stress—especially if you don’t know what to do. To identify the proper steps you should take, you need to understand a few things that determine how much you pay on your own for expenses:

  • Actual cash value: This number represents the difference between the amount to replace your damaged car and its depreciated value. Depending on your policy, you may be reimbursed for your car’s current value.
  • Your car becomes a “total loss” when repair costs exceed the vehicle’s value. We’ll cover this in-depth later on in this article.
  • If you’re still financing the vehicle, the loan doesn’t go away after an accident. You remain financially responsible for paying it off.

You Crash Your Car and Still Owe Money on the Loan: Now What?

If you’re in a situation where you crash your car and are still making payments on it, what happens afterward is tricky. As stated earlier, you remain responsible for paying off the balance on the vehicle, but how much you end up paying depends on several factors. Let’s examine the different scenarios to give you a better idea of the options available.

You Have Insurance (At Fault)

Car accidents happen, and in some cases, you may be responsible for what transpired between you and the other driver. The good news is most lenders require that you maintain full auto insurance coverage throughout your loan. This can be a life-saver financially when dealing with extensive repair and replacement costs.

Two types of insurance policies protect you against large expenditures, such as car accidents: collision and comprehensive. Let’s walk through both.

  • Collision insurance: This coverage policy pays for any physical damage to your car caused by a collision with another driver.
  • Comprehensive insurance: If your car is damaged by something other than a collision, comprehensive insurance can help pay for repairs or replacements. You can count on a comprehensive policy for financial protection against incidents such as fires, hailstorms, vandalism, and thefts.

You Have Insurance (Not at Fault)

If you’re insured, and you end up in a car accident that wasn’t your fault, then the other party is liable for paying damages and repairs. In this case, the at-fault driver should have their liability insurance cover the value of your totaled vehicle. Do note, if the responsible driver has no insurance or coverage type, you’ll have to rely on your collision coverage.

You can also look into uninsured motorist property damage (UMPD). This policy helps protect you against uninsured drivers who cause an accident involving you. While Texas doesn’t require that you carry UMPD insurance, it is worth looking into, so you can have some form of financial backup in case of an accident.

Two things to remember about UMPD: Depending on your policy, you may or may not receive enough coverage to pay for the value of your vehicle. Also, every state has a different deductible amount. In Texas, the deductible for uninsured coverage is $250.

You Don’t Have Insurance

If you don’t have any insurance at the time of the accident and the other driver was at fault, you can still file a claim against the other driver’s liability insurance for compensation. Make sure you have all your lender information before contacting them. Most states require that you carry liability insurance to pay for damages you caused.

In Texas, you are legally required to have $60,000 in liability coverage per accident. Also, in some states, you may not receive compensation if you are uninsured because of no pay, no play laws. This means that even if you were involved in an accident that wasn’t your fault, you may not receive compensation from the at-fault driver if you don’t have insurance.

Texas doesn’t have this policy, so you’re safe here.

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What Does a Total Loss on a Vehicle Mean?

In some cases, a vehicle becomes a total loss after a serious accident. What this means is that the cost to repair your vehicle exceeds its value. Your insurance company will assess if your car becomes a total loss after an accident. To determine your car’s status, your insurer will consider your car’s actual cash value.

a car next to moneyAs mentioned earlier, the ACV is the value of your car in its current condition. That number depends on several factors, including:

  • Make
  • Model
  • Mileage
  • Accident history
  • Current condition

Every state has different requirements when determining if a car becomes totaled. In Texas, if repair costs are 100% or more of the car’s value, it becomes a total loss. As you can see, the extent of the damages on your car will determine not just its value but how much you end up paying out-of-pocket.

In case you’re wondering: You can keep a totaled car. However, this may not be a smart decision since you’ll have to pay for the damages on your own without compensation. Plus, if you sign over the title of your car to the insurance company, you no longer have to pay for the insurance.

What If Your Settlement Doesn’t Pay Off Your Car Loan?

If, after exploring your options, you learn that the insurance settlement doesn’t pay off the entire loan on a totaled car, you’ll need to explore additional options. If you don’t, you’re stuck paying off your loan, even if you can’t drive your vehicle.

If your vehicle is totaled, and the amount left on your loan remains higher than the car’s value, you can use gap insurance to pay off the difference. What exactly is gap insurance? This is an optional coverage policy that pays off your car loan after your car is damaged in any way or stolen.

If what you owe is higher than your car’s depreciated value, then gap insurance can bridge the gap so you don’t end up paying out-of-pocket for the difference. The exact amount depends on the difference between the actual cash value (ACV) of your car minus your deductible. While gap coverage remains optional across all states, some lenders require it.

Remember, gap insurance only covers the remaining loan, so don’t expect coverage for any of the following:

  • Car replacement (rental)
  • Medical bills
  • Lost wages
  • Damages to someone else’s property
  • Replacement parts

Does a Car Crash Affect My Credit Score?

Not necessarily. Your credit score depends solely on the information provided in your credit report, and this doesn’t include information about your driving record or claims you made. However, if you incur any debts from your accident, this can affect your score in the long run if you miss any car payments.

A severe accident can lead to tremendous debt, making it difficult for borrowers to make their payments on time. Additionally, your insurance premiums may rise, which puts you in a financial predicament.

Finance Car Damages with Power Finance Texas

A lot can happen after you crash a financed car. Don’t let accidents take control of your life or your money. If you need financial relief after getting caught up in a car accident, Power Finance Texas can help.

Check out our multiple custom loans and services, instead of payday loans, to help ease your financial distress in a difficult situation.

Contact us to learn more about your options.