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What To Consider if the Value of Your Totaled Car is Less than the Outstanding Loan Amount

insurance adjuster taking notes on car damage after a car accident
You were in an accident and the insurance company totaled your car, but now you owe more on the loan than the actual value of the car. How do you handle this claim?

While it may seem counterintuitive, quite often we encounter cases in which a client’s car that was in a crash has been deemed “totaled” by the insurance company, but the total value given for the car is less than what our client has remaining to pay on the loan. This would mean not only would they be continuing to pay for a car they don’t have anymore, but they don’t even have a vehicle to trade-in towards a new car. This can make for a very difficult financial situation.

If the cost of repairing your damaged vehicle is more than the market value of the car, the insurance company declares the car a total loss, which requires them to pay you the market value of that car at the time of the collision. It is as if the insurance company is buying the car from you at market value instead of repairing it.

With cars becoming more expensive and lending terms increasing duration to up to six or seven years, a car’s value often can decrease faster than the loan amount. If you still have payments to make toward your loan, then you may be left essentially putting that money received from the total loss toward those payments.

One way to prevent much of this problem is through the purchase of an insurance policy called gap insurance prior to the accident. Gap insurance pays the lender the difference of the loan amount and the value of the car. However, valuation issues almost always arise.

When determining the value of the totaled car, insurance companies want to pay you the lowest amount possible, and you will likely find they do not include special options that would raise the dollar amount coming to you. A moon roof, new tires, or a new transmission will often be omitted. You can look online for comparable vehicles with higher values and demand a higher offer for your car.

The next payment is often due shortly after an accident, and insurance companies can be slow in determining the total loss of a car. Be aware that gap insurance does not cover late fees and expenses that accrue in these situations.

Additionally, you should consider your personal injury claim in light of how poorly insurance companies will tend to treat you in regards to your property damage. Hiring an experienced personal injury attorney is very important when pursuing your claim. Watch the video to learn more.

If you have additional questions about your auto accident case, I want you to call me at (888) 487-8546. I welcome your call. Visit for more videos and media content from our law firm.

Kalfus & Nachman
Offices in Norfolk, Newport News and Roanoke, Virginia.

Also Serving Northeastern North Carolina.



Video Transcript:

I was just in an accident and the insurance company totaled my car. What happens if I owe more money on the car than the insurance company is offering? Hi, I'm Paul Hernandez, attorney at Kalfus & Nachman, litigating cases across Virginia and North Carolina. This is a situation that happens more often than you think. Cars are expensive, which means people have to take out larger and larger loans to purchase cars. Lenders are also lending money on a car for extended periods of time. Years ago, a loan on the car would be three, four years. Now lenders are increasing their lending terms to include five, six, seven years to finish paying off these larger loans.

The problem arises because the car's value decreases faster than the loan amount, which means you may owe more on the loan than the value of the car. If you own a car for the entire term of the loan, there's no problem. The problem arises when you are involved in a wreck and the cost to repair the car is more than the market value of the car. When this occurs, the insurance company declares the car a total loss, and they are required to pay you the market value of the car at the time of the collision. They are essentially buying the car from you at the market value. Sadly, the law indicates that the value of the property cannot exceed the fair market value of the vehicle.

This becomes a problem when you owe more money on the loan than the value of the vehicle. The insurance company will pay the lender the value of the car, and you are personally responsible for the balance of the loan. In this scenario, you will be paying for a car you no longer own. Additionally, you do not have a car and you do not have any money for a down payment for a new car. Ugh. There are a couple of ways to prevent or minimize this problem. The first thing you can do is purchase gap insurance when you buy and finance your car. Gap insurance will pay the lender the difference of the amount of the loan and the value of the car. That way the loan is paid in full. Please do not be fooled. It rarely covers exactly the difference. There is always some valuation issue.

Many times we see a problem when the client fails to make the next payment as it becomes due right after an accident. Additionally, insurance companies drag their feet when deciding to total loss a car. During this time late fees and expenses can accrue, which are not covered by gap insurance. Please see our gap insurance video for more information.

Another way to minimize the difference in the loan value and the market value of the car is to look at carefully and challenge the valuation report you get from the defendant's insurance company. The insurance company will want to pay the very least they have to, to buy that car from you. So they will nickel and dime the condition of your car. They will forget to include the driving options like a moon roof or alloy wheels. They will also admit that the fact that you just put new tires on or a new transmission in the car. You will want to look online for comparable vehicles with a higher value and share them with the insurance adjuster. Then demand that they offer you more money for the value of your car.

The next thing you will want to think about is how they are going to handle your personal injury claim. If they rooked you on your property damage, don't you think the insurance company will continue their bad behavior when evaluating your personal injury claim? Which makes it much more important that you hire an experienced personal injury attorney to handle your injury claim. So you can maximize the bodily injury settlement. If you have questions about insurance claims following an automobile you'll accident, call me, Paul Hernandez at (888) 487-8546. I answer questions like this every day. Thanks for watching.

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