Natural disasters like hurricanes, fires, and floods can cause significant vehicle damage, often leading to a total loss. Even minor accidents, such as a fender-bender, might result in a car being deemed a total loss. So, how can you determine if your vehicle qualifies as a total loss after an accident or disaster, and what steps should you take?
A total loss occurs when the cost to repair a vehicle exceeds its actual cash value (ACV). In such cases, it’s typically more economical to replace the vehicle than to repair it. To learn more about your financing options for a replacement vehicle, check out our resources here.
Insurance companies calculate total loss differently, but in most states, the threshold ranges between 50% to 75% of the vehicle’s ACV. For example, if repair costs and salvage value add up to at least 50% of the ACV, the car is typically considered a total loss.
If your vehicle is deemed a total loss, your insurance company will pay you the ACV, provided you have full or comprehensive insurance. Often, they send the check directly to your lender if you still have an auto loan. Even if the car is undrivable, you’re still legally obligated to pay any remaining loan balance, as lenders can pursue payment through legal means.
Due to depreciation, the insurance payout may not cover the entire loan amount, leaving you with negative equity. To avoid this, you can consider GAP insurance, which covers the difference between your loan balance and the ACV in case of a total loss. If you’re uninsured or only have liability insurance, unfortunately, you won’t receive compensation for the car’s value. In such cases, scrapping the vehicle may be your only option, though it typically yields little financial return.
If your car is fully paid off, any ACV payout you receive is yours to use toward purchasing a new car. For assistance in finding a replacement, explore our inventory of used vehicles.
Buying a new car after a total loss is similar to any other car purchase, though your insurance rates may increase. If your previous car was paid off, you can use the insurance payout as a down payment for your next vehicle. To start exploring options, check out our apply here page.
Having good credit can make the financing process smoother, while those with bad credit may face more challenges. Bad credit car loans are available, but often through dealerships and lenders specializing in subprime financing.
A total loss does not directly harm your credit if you continue making loan payments. However, failing to pay off your loan can result in a default, which is reported to credit bureaus and can significantly impact your credit score. Even a single late payment can lower your score, so it’s essential to stay current on payments. Additionally, total loss events often increase insurance rates, potentially affecting your financial planning.
When applying for financing after a total loss, your credit score will play a key role. Those with good credit can often choose from a wide range of financing options. However, if you have poor credit, you might need to explore financing options from subprime lenders or dealerships with in-house financing.
If you need to secure financing with bad credit, be prepared to provide documentation, such as:
Requirements may vary by lender, but these are typical for customers seeking financing with credit challenges. For more details on how we can help, visit our finance page.
While a total vehicle loss can be a challenging experience, you can recover financially with the right steps. Maintaining full coverage insurance is essential, especially if you’re financing, as it helps maximize your insurance payout in case of a total loss. When you’re ready to move forward, visit us at our dealership to explore available vehicles and financing options, or feel free to contact us for more information.
