back to articles | July 27, 2023 | Pat Lee

Categories: Useful Automotive Information

What Happens If You Crash Your Financed Car?

For many individuals, owning a car signifies a significant milestone, offering unparalleled freedom and convenience. For those who cannot afford an outright purchase, financing options become an appealing choice.


For many individuals, owning a car signifies a significant milestone, offering unparalleled freedom and convenience. For those who cannot afford an outright purchase, financing options become an appealing choice. While financing does provide manageable monthly payments, it also carries certain inherent risks. Among these concerns is the possibility of unforeseen events, such as accidents involving financed vehicles. This post delves into the potential consequences of such incidents and explores the appropriate steps to take should one find themselves in these unfortunate circumstances.

1. Reaching Out to Your Insurance Provider

Following an accident with your financed car, the first course of action is to contact your insurance provider. It is generally a requirement in financing agreements to have comprehensive and collision insurance, safeguarding both the lender's interests and your investment. Comprehensive coverage typically addresses non-collision incidents like theft, vandalism, or natural disasters, while collision coverage aids in accidents.

Once you file a claim with your insurance company, an adjuster will evaluate the vehicle damage and determine the coverage applicable to your situation. Be mindful that a deductible might apply before the insurance coverage activates, necessitating potential out-of-pocket expenses.

2. Evaluating the Extent of Damage

Once safety is ensured, and the necessary authorities have been notified, assessing the extent of damage to your financed car becomes crucial. The damage may be small in some cases and simple to fix, but it may also be severe enough in others to cause the car to be a total loss.

Understanding how much does an accident devalue a car is vital in deciding how to proceed with both your car and your financing arrangement. Should the repair costs surpass the car's value, the insurance company may consider it a total loss.

In these situations, the insurance reimbursement often corresponds to the car's real cash value at the time of the accident.. However, this amount might not be enough to settle the remaining loan, leading to a financial gap.

3. Handling a Total Loss

Should your financed car be classified as a total loss, and the insurance payout falls short of the outstanding loan balance, you might encounter a challenging financial situation. You will still be responsible for the difference between the insurance payout and the remaining loan, commonly referred to as being "upside-down" on your car loan.

To mitigate this situation, it is advisable to consider acquiring GAP insurance (Guaranteed Asset Protection) during your car financing process. GAP insurance covers the disparity between your car's actual cash value and the remaining loan balance, safeguarding you from potential financial turmoil in the event of a total loss.

4. Communication with the Lender

Open and transparent communication with your lender is vital when dealing with a financed car involved in an accident. Notify them of the incident and keep them informed about the situation. Some auto loan lenders may be willing to cooperate and explore suitable solutions, such as loan restructuring or deferred payments until your insurance claim is resolved.

Carefully review your loan agreement to understand the terms and conditions related to accidents and damaged vehicles. Specific clauses may dictate how you should handle such situations, so it is essential to familiarize yourself with these details to avoid any unexpected circumstances.

5. Repairing or Replacing the Vehicle

After evaluating the damage and consulting with your insurance provider and lender, a decision must be made whether to repair or replace the financed car. If the vehicle can be repaired and is deemed safe to drive, utilizing the car insurance payout for repairs may be the most practical choice. However, if the car has sustained extensive damage, poses a safety risk, or you desire an upgrade, opting to replace the vehicle might be more suitable.


Experiencing an accident with your financed car can be an overwhelming and distressing ordeal. Equipped with the right knowledge and understanding of available options, you can navigate this situation with confidence. Although the process may be intricate, remaining composed and seeking guidance from professionals will help you move forward with greater peace of mind.