Insurance Payment After Car Totaled May Not Pay Off Loan


A car accident, even if no one is injured, is an annoying and frustrating experience for people. The first issue that often comes up after an auto collision is the repair or replacement of their car. Generally, things will go pretty smoothly if there is insurance and the car can be fixed after the crash:  Hopefully you will be covered for a rental car while you are waiting, and the repairs will get done quickly and professionally.

Car Totaled in Accident
Car Totaled in Accident

It can be a bit more frustrating, however, when your car is totaled after an accident.  Our Minnesota car accident lawyers deal with this issue frequently, so we understand the frustration.  When your car is totaled, you are basically selling the car to the auto insurance company. This is a forced sale, so you have limited control over the price.  You will get the approximate market value of the car, i.e. what it would sell for in an arms-length transaction.


There is some room for negotiation here, because there are variables like the condition of the car before the accident, special accessories you may have added, whether it should be considered a dealer transaction or a private party transaction, etc.

One thing that can be especially frustrating is if you purchased the car with a long term loan, e.g. 5 years or more. This made sense when you did it, because you got lower payments. However, the result after a crash, is that the value of your car may have depreciated (gone down) faster than you were paying off the loan. So when the insurance company pays you the market value of the car, it is not enough to pay off the remainder of the loan.

For example, if you buy a car new for $20,000 and take out a five-year loan, you may have paid down the principal by only $3,000 at the end of the first year, but the value of the car may by only $16,000.  If your car is totaled at that point, you will receive $16,000 but still owe $17,000 to the bank, so you have no car and be $1,000 in the hole.


Sadly, there is often nothing that can be done about this situation. Longer term loans on cars often result in the car going down in value faster than the loan is paid off.   Some people get “gap” coverage insurance for this type of situation, which will generally solve the problem. However, most people do not get gap coverage and can be angry if the insurance settlement on the car is less than the amount owed on the car loan. After all, the other driver wrecked your car and now you’re not getting enough insurance money to even pay off the loan.

Our auto accident attorneys go through this problem with people frequently, and we try to come up with suggestions to make the best of the situation.

However, the primary focus of our lawyers is to get people fair compensation when they have been injured in a car accident. This can be frustrating for accident victims too, but it is something our experienced lawyers help people with every day. Click here to learn more about auto insurance benefits.