What Happens If You Get into an Accident with a Financed Car?

Getting into an accident with a financed car can be stressful, especially if you’re unsure about your financial responsibilities afterward. But what happens if you get into an accident with a financed car? If you’re involved in a crash with a vehicle you haven’t fully paid off, you may still be responsible for making loan payments, even if the car is severely damaged or written off. Understanding your obligations and rights in this situation is crucial, especially if you’re in New Mexico. At Parnall Law, we’re here to help you manage the complexities of dealing with a financed car accident.

What Happens If You Get into an Accident with a Financed Car?

If you get into an accident with a financed car, you are generally still responsible for paying back the loan. This means that your loan agreement with the lender remains in effect even if the vehicle is undriveable or written off. When you finance a car, the lender holds a lien on the vehicle, making it collateral for the loan. As a result, the lender maintains a financial interest in the vehicle until your loan is paid off entirely.

After an accident, it’s essential to notify both your insurance provider and your lender right away. Insurance will play a major role in determining what costs are covered, and different types of insurance, like collision and comprehensive, may help cover the costs of repairs or a total loss. However, deductibles and policy limits may still leave you with some out-of-pocket expenses.

Do I Still Have to Pay My Loan?

Yes, even if your financed car is damaged or totaled, you’re still responsible for making loan payments. A car loan is a legally binding contract, and the lender requires consistent payments regardless of the vehicle’s condition. If the vehicle is repairable, your insurance payout can help cover the repair expenses, but your loan payments must still be made according to the original terms.

But if it is considered a total loss, your insurer may reimburse you for the vehicle’s Actual Cash Value (ACV). Still, if the ACV is lower than what you owe on your loan, you will be responsible for paying the difference. This situation, known as being “upside down” or “underwater” on a loan, is expected for financed vehicles, particularly if the car has depreciated in value.

To help cover any gap between the ACV payout and the loan balance, some people choose to purchase Guaranteed Asset Protection (GAP) insurance. This can cover the remaining balance, helping you avoid out-of-pocket costs in case your insurance payout falls short. Without GAP insurance, you are liable for any remaining debt, no matter the car’s condition.

Will My Accident Affect My Credit Score?

An accident itself doesn’t impact your credit score, but the financial consequences that may follow could affect it. For example, your credit score could suffer if you fall behind on loan payments due to unexpected repair costs or if you’re responsible for paying off the balance on a totaled car. Lenders report missed payments or delinquencies to credit bureaus, which can negatively impact your credit rating.

If your car is totaled and the insurance payout doesn’t cover the entire loan amount, that remaining debt could go to collections if you’re unable to pay it, causing further harm to your credit. Late or missed payments due to financial strain from the incident can also impact your credit. Certifying you have adequate insurance coverage, including GAP coverage, can help you avoid some of these economic challenges that might affect your credit score.

To protect your credit, staying in close communication with your lender and insurance provider is fundamental. They may be able to offer solutions, such as payment plans or temporary adjustments, to help you manage the payments if you’re facing financial hardship due to the misfortune event.

What Is an Insurance Write-Off?

An insurance write-off occurs when the cost to repair your vehicle exceeds its Actual Cash Value (ACV), leading the insurance company to declare the car a “total loss.” In such cases, the insurer usually pays out the car’s ACV instead of covering repair expenses. This approach is often applied when repairs are technically possible but deemed financially impractical due to high costs.

Insurance companies assess the damage to the vehicle, compare it with the car’s market value, and decide whether it’s worth repairing. If your vehicle is declared a total loss, the coverage payout will likely go directly to the lender if there is an outstanding loan balance. This ensures that the lender receives their portion first, as they have a lien on the vehicle.

In New Mexico, as in other states, insurance providers follow a structured process to assess and manage claims for financed vehicles. If your car is written off, you must work with both your lender and insurer to understand your options and obligations.

What Happens If My Car Is Written Off?

If your financed car is written off, the insurance will typically pay the lender the car’s actual cash value. But, if the ACV payout doesn’t cover the entire loan balance, you’ll be responsible for paying the remaining debt. This can be financially challenging if you’re left with a significant balance after the insurer’s payout.

For instance, if you owe $18,000 on your loan, but the insurance payout based on the car’s ACV is only $14,000, you would still need to pay the remaining $4,000. GAP insurance, if included in your coverage, can help cover this shortfall, providing you with financial protection; however, if you don’t have it, you will need to settle the remaining debt with your lender out of pocket.

If your car is declared a total loss and you lack the means to cover the remaining balance, your lender may offer options such as a payment plan. Working closely with your insurance provider and the lender is essential to avoid additional economic stress.

Contact Us for Help Navigating the Aftermath of a Financed Car Accident

Uncertainty about financial obligations and insurance rights after an accident with a financed car can be overwhelming. Consulting an experienced car attorney can clarify your options and help protect your financial interests. At Parnall Law, we’re here to guide you through the complexities of insurance claims, loan repayments, and credit considerations that follow a collision with a financed vehicle. Call us at (505) 268-6500 or contact us today for a free consultation.