What to Do When Your Car is Totaled But You Have No Gap Insurance and Are Not At Fault

Having your vehicle totaled in an accident is bad enough. It gets even worse if you still owe money on your car loan and have no gap insurance coverage. This leaves you on the hook for the remaining balance while also suddenly being without transportation.

The situation may seem dire, but you do have options to avoid financial devastation. This guide explains what to do if your car is totaled, you don’t have gap insurance, and the accident was not your fault.

Understanding What Happens When A Car is Totaled

Before going further, it helps to understand what it means when insurance declares your vehicle a total loss.

When is a Car Considered Totaled?

Your car is considered totaled when the repair costs exceed a certain percentage of the car’s pre-accident value. This threshold is typically around 70-75%, but can vary by state and insurance company.

For example, if your car was worth $20,000 before the accident and the repairs are estimated at $16,000, the car would likely be declared a total loss since $16,000 is 80% of $20,000.

How Insurers Determine the Value

The insurance adjuster will determine your car’s pre-accident fair market value. This is done by looking at similar vehicles in your area. The value is based on the car itself, not what you owe or originally paid.

You Don’t Get to Keep the Totaled Car

Once the insurer declares your car totaled and pays out the claim, the car’s title is transferred to the insurance company. They then salvage and dispose of the vehicle. You cannot keep driving the totaled car, even if it still runs.

Gap Insurance Covers the Loan Balance

Gap insurance is an optional add-on coverage that pays the difference between what your vehicle is worth and what you still owe the lender if it is totaled.

For example, if you owed $18,000 on your car loan but the car was only valued at $15,000, gap insurance would pay the $3,000 difference so you don’t end up still making payments on a non-existent vehicle.

What Happens if You Have No Gap Insurance

Unfortunately, being not at fault does not get you off the hook for a remaining auto loan balance if you don’t have gap coverage. Here is what generally takes place:

  • The at-fault driver’s insurance pays the value of your totaled car to your lender
  • If this payout doesn’t cover the full loan balance, you become responsible for the remaining amount
  • You continue making monthly payments even though you no longer have the vehicle

Some specifics on how it works:

  • The at-fault insurer pays the ACV (actual cash value) determined by the adjuster
  • This goes directly to your lender, not you
  • If the ACV payout fully covers your loan, the loan is paid off and requires no more payments
  • However, it it does not fully pay off the loan, the payment only covers part of the balance
  • Whatever loan balance remains after the payout is your ongoing responsibility
  • You keep making your usual monthly payments until it is fully paid off

This results in you potentially paying thousands of dollars for a car you can’t even drive. Without gap insurance, you have very limited options.

Strategies for Dealing With No Gap Insurance When Not at Fault

While the situation seems dismal, all hope isn’t lost. You can take proactive steps to help minimize the financial impact from the loan balance.

Negotiate the Value of Your Totaled Car

Do your own homework on the value of your specific year, make, model and condition vehicle. Compare prices of similar vehicles currently for sale in your area.

Provide this documentation to the claims adjuster and request a re-evaluation if you can reasonably prove your car was undervalued. Squeeze out every last dollar possible, as it goes straight to reducing your remaining loan balance.

Refinance the Loan

See if you qualify to refinance your existing car loan to lower the monthly payment. This may involve extending the length of the loan to maintain lower payments on the remaining balance.

Roll the Balance Into a New Car Loan

When you purchase another vehicle to replace the totaled one, you can often roll the old loan’s balance into the new car financing. This folds it together into one new loan and payment.

Voluntarily Surrender the Car

You can proactively contact your lender and voluntarily surrender the car, which hands it over to them. This eliminates the need to continue making payments, but your credit score will take a hit.

Consider Bankruptcy to Eliminate the Debt

Bankruptcy can wipe out certain debts, including potentially the remaining auto loan balance. This also damages your credit, but may be better than continuing to pay on a car you don’t have.

Explore Lender Programs for Total Loss Assistance

Some auto lenders offer special programs with solutions for customers who have suffered a total loss. Check with your lender to see if they have options like forgiving part of the balance.

Steps to Take When Your No Gap Insurance Car is Totaled

Follow these steps for the best outcome when your not at-fault totaled vehicle has an outstanding loan balance and no gap policy.

  • Immediately call your insurance company to start your claim. Provide details on the accident and damage.

  • Ask about your policy’s collision coverage and whether it could help with vehicle replacement.

  • Take thorough photos of the damage to your car and the accident scene. Document details on exactly what happened.

  • Save all repair estimates, parts invoices, and associated accident paperwork. Get a copy of the police report.

  • Research the actual value of your specific car before it was totaled, using auto valuation guides.

  • Negotiate with the claims adjuster for fair value if their initial offer seems too low based on your documentation.

  • Contact your lender to confirm the remaining loan balance and what will happen next.

  • Explore lender assistance programs, refinancing, surrendering the vehicle, or other options regarding the loan.

  • Weigh the long-term costs of continuing payments vs. options like bankruptcy or voluntary repossession.

  • If purchasing another car, inquire about rolling the prior loan balance into new financing.

  • Avoid signing any release accepting a claims settlement until you’ve explored all possible avenues for maximum compensation.

Being hit with a total loss along with ongoing loan payments for a car you can’t drive is a financial nightmare. While a difficult situation, strategic planning can help minimize the monetary stress. With persistence and creativity, you can find the best possible solution.

Frequently Asked Questions

What should you do if your car is totaled and you still owe money?

  • Immediately contact both your own insurance company and the at-fault driver’s insurer to start the claims process. Provide as much documentation as possible on the value of your specific vehicle. Negotiate with the claims adjuster if their value determination seems too low. Also contact your lender to discuss options regarding the remaining loan balance, like refinancing, voluntary surrender, or special lender programs.

Who pays for a totaled car with outstanding loan balance?

  • The at-fault driver’s insurance pays the determined value of the totaled vehicle. This payment goes directly to the lender. If it fully pays off the loan, you are done. If not, you remain responsible for the remaining balance. Without gap insurance, you could end up continuing monthly payments for a car you no longer have.

Can you keep making payments on a totaled car?

  • Yes, in most cases you are still responsible for paying off your totaled vehicle’s loan balance, even if you no longer possess the car. The at-fault insurer only pays the actual cash value, not what you owe. Without gap insurance, you must continue your monthly payments until the full balance is paid off. Alternatives include refinancing, voluntary surrender, or filing bankruptcy.

What happens if you owe more than the car is worth when totaled?

  • You are responsible for the difference, known as negative equity. For example, if you owed $15,000 but the car was valued at $12,000, you would still owe $3,000 after the insurer’s payout. Gap insurance covers this difference. With no gap coverage, you must keep paying on the remaining $3,000 balance.

Can gap insurance be purchased after an accident?

  • No, gap insurance policies only pay for future total losses. The coverage must be in place when the accident occurs. Gap insurance providers typically don’t write new policies for vehicles that have just been in an accident. It is an optional add-on when purchasing your auto loan or lease.

Is it better to total a leased vehicle?

Leasing companies often require gap coverage. So with a leased vehicle, being totaled with gap insurance in place may work out best financially. The gap policy will pay off the remaining payments, leaving you with no further obligation. Check your lease agreement regarding responsibilities for disposal fees and other costs.

The Bottom Line

Having a car totaled in an accident you didn’t cause is upsetting and challenging enough.

What Happens If You Total Your Car With No Gap Insurance?


How does insurance work when its not your fault?

If you file a claim with your carrier when you are not at fault, your carrier will eventually begin a process called subrogation. Essentially, this means that once liability is determined, your insurance carrier will send a demand to the at-fault party’s carrier to pay back the damages that were paid out to you.

What does it mean when you have no gap insurance?

Your collision coverage would pay your lender up to the totaled car’s depreciated value — say it’s worth $19,000. If you don’t have gap insurance, you would have to pay $1,000 out of your own pocket to settle your auto loan on the totaled car. If you have gap insurance, your insurer would help pay the $1,000.

What happens if you never use your gap insurance?

If you already paid for gap insurance, you can cancel it and request a refund from your car insurance company for any unused portion of the coverage. For example, if you have six months of coverage left on a 12-month gap insurance policy and you cancel, you can be reimbursed for the unused six months minus any fees.

Why did my gap insurance not cover my car?

Gap insurance companies can deny a claim for a variety of reasons. The most common reasons are a loss that isn’t covered by the policy or that the policy has lapsed. Gap insurance only pays in one situation: After an accident, your car is a total loss and you owe more than it’s worth.

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