What Happens if You Total a Financed Car?

If you’ve been in a serious car accident and your vehicle has been declared a total loss, the uncertainty and confusion can be overwhelming, and you may be wondering what happens next—especially if you’re still making payments on a financed car. 

With a financed car accident, the process often involves navigating complex insurance policies, understanding state laws and legal jargon, and negotiating with adjusters, among other stressful steps.

The good news is that you don’t have to face this situation alone. Morgan & Morgan, America’s largest personal injury law firm, is here to help. With over 35 years of experience in car accidents, our legal experts can help you understand your rights and legal options in any kind of car accident, and the best part is you don’t have to pay a dime to work with us. That’s right—the Fee Is Free®, and you only pay if we win your case.

Hiring one of our lawyers is easy, and you can get started in minutes with a free case evaluation. Below, discover more about your specific case, and when you’re ready, contact us for free.

What Does It Mean to Total a Car?

A car is considered “totaled” when the cost to repair it exceeds a certain percentage of its actual cash value (ACV), which is determined by the insurance company. In many states, this threshold is typically around 70-75% of the car’s ACV. In some cases, a vehicle may also be deemed a total loss if the damage is so extensive that it cannot be safely repaired.

What to Do if You Total a Financed Car

Step 1: Contact Your Insurance Company

After an accident, your first step should be to report the incident to your insurance company. The insurer will send an adjuster to assess the damage and determine whether your car is repairable or a total loss. If the car is totaled, the insurance company will provide a settlement offer based on its ACV.

Step 2: Check Your Insurance Coverage

The type of coverage you have will determine how much you receive in compensation:

• Collision Coverage: If you have collision insurance, your insurer will pay for the totaled vehicle up to its ACV, minus your deductible.
• Liability-Only Coverage: If you only have liability insurance, your policy will not cover your vehicle’s damage, meaning you’ll be responsible for the remaining loan balance unless the other driver was at fault and their insurance covers it.
• Gap Insurance: If the insurance payout is less than the remaining loan balance, gap insurance can cover the difference.

Step 3: What Happens to Your Loan?

Even though your car is totaled, your auto loan does not disappear. You are still responsible for paying off the remaining balance. Here’s how it plays out:

• Insurance Payout Covers the Loan: If the insurance payout is equal to or greater than your remaining loan balance, the lender will receive the funds, and any remaining amount will be given to you.
• Insurance Payout is Less Than the Loan Balance: If you owe more than what the insurance company offers, you are responsible for the remaining balance unless you have gap insurance.

Step 4: What If You Still Owe Money After a Total Loss?

If your insurance payout does not cover your remaining loan balance, you have a few options:

• Pay the Remaining Balance Out-of-Pocket: You’ll need to continue making payments to your lender until the loan is paid off.
• Negotiate with Your Lender: Some lenders may offer options such as refinancing or payment plans.
• Use Gap Insurance: If you purchased gap insurance, it will cover the remaining balance after the insurance settlement.

What If You Were Not at Fault?

If another driver was at fault for the accident, their insurance company should cover your damages, including the value of your totaled car. However, insurance companies may not always offer a fair payout. In such cases, you may need to negotiate or seek legal assistance.

Can You Keep Your Totaled Car?

In some cases, you may be able to keep your totaled car, but there are a few things to consider:

• Salvage Title: The car will be issued a salvage title, meaning it has been declared a total loss by an insurer.
• Repair Costs: You will have to cover the cost of repairs out of pocket.
• Limited Insurance Options: Some insurers may not cover a car with a salvage title, or they may charge higher premiums.

Do You Need a Lawyer for a Totaled Financed Car?

If your financed car is totaled in an accident, hiring a lawyer might be beneficial depending on your situation. Here’s when you might need legal help:

Insurance Disputes

If the insurance company offers a settlement that doesn’t cover the remaining balance on your loan, a lawyer can help negotiate a fairer payout. If the at-fault driver's insurer is refusing to pay or delaying compensation, legal assistance can also help expedite the process.

Gap Insurance Issues

If you have gap insurance, it should cover the difference between what you owe on the loan and the car’s actual cash value (ACV). However, if your claim is denied or the payout is insufficient, an attorney can challenge the insurer.

Lender Disputes

If your lender is demanding immediate repayment of the remaining loan balance, but insurance has not yet settled, a lawyer can negotiate a solution.

Fault & Liability Issues

If the accident was caused by another driver, but they or their insurer are disputing liability, an attorney can help prove fault and recover damages.\

Bad Faith Insurance Practices

If your insurance company is acting in bad faith—delaying payments, denying valid claims, or undervaluing your car—a lawyer can take legal action.

Note: When You Might Not Need a Lawyer

If your insurance company pays the full amount owed on your loan, or if you have gap insurance that covers the remaining balance without issue, you may not need legal assistance.

If you're struggling to get a fair settlement, consulting with a lawyer—especially one experienced in auto accident and insurance claims—could help protect your financial interests. 

If your insurance company offers a low settlement, denies your claim unfairly, or you have trouble dealing with the at-fault driver’s insurance, contact Morgan & Morgan—we fight for the compensation you need and deserve to move forward with your life after an accident.

See if We Can Help: Get a Free Case Evaluation With Morgan & Morgan

Totaling a financed car can be a stressful and confusing experience, but understanding your options can make the process smoother. Whether it’s dealing with insurance companies, managing your auto loan, or seeking legal help, Morgan & Morgan can fight to help you recover financially and get back on the road. 

If you need assistance navigating the complexities of a totaled vehicle, contact Morgan & Morgan today for a free case evaluation.

Frequently Asked Questions

How Can I Fight a Car Total Loss Settlement?

Insurance companies are businesses like any other. For this reason, they will likely try to lowball you when your car is totaled. So if you disagree with their valuation of your totaled car, you can dispute the settlement offer and negotiate for a higher payout.  

To do this, you will need evidence of the car's condition, mileage, and market value. This evidence may include photos of the car before and after the accident, repair estimates, maintenance records, and comparable listings of similar vehicles in your area.

If possible, hire an independent appraiser to determine the car's value. Their findings can provide additional evidence to support your claim.

It is also important to ensure you understand your insurance policy and the terms of your coverage. Look for any clauses or provisions that may support your case, such as coverage for replacing the car with a similar model or coverage for aftermarket upgrades.

Once you have gathered your evidence and reviewed your policy, you can negotiate with the insurance company. But there's usually no guarantee that the insurance company will be willing to negotiate. In that case, you'll need to move on to the next step, which is hiring an attorney to represent you. A seasoned car accident lawyer can help you navigate the legal process and fight for a fair settlement.

How Exactly Can an Attorney Help?

Your attorney will first evaluate your case to determine whether you have a valid claim. They will review the terms of your car insurance coverage, the unique circumstances of your case, and the insurance company's conduct to establish whether the insurance carrier is acting out of bad faith.

After reviewing the details of your case, the attorney will advise you on your legal options. And if your claim is valid, they will help you build a strong case against the other party.

Once they've gathered the facts (and evidence) of the case, the attorney can negotiate with the insurance company on your behalf to ensure that you receive fair compensation for your totaled car.

Suppose the negotiations with the insurance company are unsuccessful; a competent auto accident attorney can help you file a lawsuit against the insurance company. In addition, they can represent you in court to fight for a fair settlement.

Dealing with insurance companies and legal paperwork can be complicated and time-consuming. But you should not have to worry about that when you have an attorney. They can handle these tasks on your behalf, saving you time and ensuring all legal requirements are met.

In addition, car accident laws can be complex and vary from state to state. The right attorney can help you navigate these laws and protect your rights in the process.

What Damages Can I Recover in a Bad Faith Insurance Claim for a Car Accident?

If your insurance company acts in bad faith after a car accident—such as denying a valid claim, delaying payment, or offering an unreasonably low settlement—you may be able to recover various damages by filing a bad faith insurance claim. These damages typically include:

Compensatory Damages (Actual Losses You Suffered)

• Unpaid claim amount: The money your insurer should have paid for your car repairs, medical expenses, or other covered losses.
• Additional repair or replacement costs: If the insurer’s delay caused your vehicle’s condition to worsen or forced you to pay out-of-pocket.
• Medical bills: If the insurance delay or denial prevented you from getting needed medical treatment.
• Lost wages: If the insurer’s actions caused financial hardship that kept you from working.
• Rental car costs: If you had to pay for a rental because your insurance refused coverage.

Consequential Damages (Losses Caused by the Insurer’s Actions)

• Emotional distress: The stress, anxiety, or mental suffering caused by financial strain due to the insurer’s actions.
• Legal fees: The cost of hiring an attorney to fight the bad faith claim.
• Interest on delayed payments: Compensation for the time value of money you should have received earlier.

Punitive Damages (If the Insurer’s Conduct Was Extreme)

Courts may award punitive damages if the insurance company’s actions were especially egregious, such as intentionally misleading you, falsifying claim information, or consistently denying valid claims. These damages serve as punishment and a deterrent to insurers engaging in similar conduct.

How to Prove a Bad Faith Insurance Claim

To win a bad faith insurance lawsuit, you must show that:

• The insurer unreasonably delayed, denied, or underpaid your claim.
• The insurer failed to investigate the accident properly.
• The insurer violated state insurance laws or the terms of your policy.

If you believe your insurance company acted in bad faith, contact Morgan & Morgan—our experienced attorneys can help you fight for the compensation you deserve.