Upside Down Car Loan

Being upside down on your car loan means that the insurance company did not give you enough money to pay off your loan after the car accident. We don’t mean to bring your hopes down, but to dispel any misconceptions people may have on this subject, the insurance company does not have to pay off your loan. The amount of your loan has nothing to do with the amount of money the insurance company is obligated to pay you for your property damage settlement.

You can look at this as a bad thing, but we tend to be optimists. What if your vehicle was worth $15,000 and the amount you owed on you loan was only $9,500? Wouldn’t you much rather have the insurance company pay you what your vehicle is worth? You can see why the insurance is only obligated to pay you the resale value of your vehicle the day of the car accident. The loan and value are totally separate and rightfully treated separately in an insurance settlement.

In many cases, again depending on your insurance company, the total loss settlement will first be paid to your lien holder. Upon receiving payment from the insurance company, your lien holder will pay your loan and send you the remaining balance if their is one. If the amount owed on your loan is more than the property damage settlement, you are still liable for the remaining balance on your car loan. Most dealerships will roll the remaining balance on one car loan into another in order to make a sale. This can be VERY dangerous as the amount owed on the second vehicle is going to be way more than its value. If that vehicle ends up getting totaled in another accident, you are back to square one but in worse shape.

The best advice we can give you may not correct your current situation but it will prevent future repetition of you being upside down on any car loan because of a car accident. When you purchase a vehicle, ask for Gap Insurance. Simply put, gap insurance bridges the gap between what your vehicle is worth and what you owe on the car loan. Having gap insurance is a life saver for anyone in trouble of being upside down on a car loan because of a car accident and well worth the money spent.

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