The Money the Insurance Company Has Given Me for My Vehicle Will Not Completely Pay Off My Car Loan. What do I do?
When you get into a car accident with a car you rely on for daily transportation, the wait to find out if the car is a total loss can seem excruciating. A total loss means that the insurance company feels that the costs to repair the vehicle exceed the vehicle's value. In this instance, the insurance company will opt to send you a check for the value of the vehicle and declare the vehicle a total loss.
How Much Will that Check be for?
Insurance companies generally issue checks based on the value of the vehicle and not the amount left on the loan. If the Kelley Blue Book (the standard for determining the value of a car) says that your car is worth $5,000.00 but you have a $6,000.00 balance on your loan, then you will get a check for $5,000.00.
What do I do?
The value of your vehicle versus the remaining balance on your loan is not something your lender is concerned with. If you owe $6,000.00 on a car that is worth $5,000.00, then your pay-off amount on your vehicle is $6,000.00. To pay off that loan, you are responsible for coming up with the $1,000.00 difference. Most lenders require you to pay off the balance of your car loan when your car is totaled.
Gap Insurance
When you finance the purchase of a car, it is important that you remember that the value of your car is not tied to the balance on your loan. That is why some people purchase gap insurance to help pay off loans on totaled cars. Gap insurance is designed to cover the difference between the value of the car and the balance on the loan when the car is totaled. The cost of gap insurance is very low, but it can save you a lot of money.
The Check You Receive
If you still have a balance on your car loan, then your finance company has a lien on your vehicle. This can mean that you must pay the finance company before you get to take any money from your insurance check. To make sure that you use the money to pay off your loan, the insurance company can sometimes make the check out to you and the finance company. This will mean that you cannot access any funds from the check until the loan is paid.
If you find yourself in financial trouble after a car accident that causes you to endure personal injuries, we invite you to give us a call and let our professional car accident attorneys answer your questions.