What Happens If I Don’t Pay a Car Loan After a Total Loss?


As it states in your contract, you’re responsible for paying off your vehicle’s loan even if you no longer have the vehicle. Before you assume that you owe the total loan amount, determine what kind of coverage you have on your car — insurance is usually mandatory for a vehicle loan.

If a balance is due, you must pay it, or the lender can take you to court.

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Car Loan After a Total Loss


Full-Coverage Insurance

You should have a full-coverage policy in effect on your vehicle because you have a loan on it — this is a bank requirement. Insurance companies report lapses in coverage, cancellations and renewals to your lender. If you don’t supply sufficient coverage, banks usually enforce an expensive, full-coverage policy.

A full-coverage policy covers your vehicle’s market value, even if you were at fault in the total-loss incident. Check with your insurance company to find out how much of the loan will be paid off.


GAP Insurance

Banks may also require guaranteed auto protection, or GAP, insurance coverage for car loans, or this type of insurance may be offered if you bought the vehicle at a dealership. Dealers may sneak the cost and coverage into your loan amount for profit reasons. GAP insurance covers the “gap” between the market value of your vehicle and its loan amount.

Check your original purchase paperwork to find out if you have this coverage, or call the originating dealership to ask if it was included in your sale. Also check with your insurance provider, which may include GAP insurance.


Arranging Payments

Whether you have adequate coverage or not, you have to make arrangements to pay if a balance still exists on the loan. Call your bank to find out if you can set up a payment plan that works for you.

Or, if you plan to purchase a new car, you can ask the dealership to roll over the loan balance in your new loan. This possibility depends on your credit and the new vehicle’s equity, but it can eliminate the need for you to come up with the cash.


Credit Reporting

If you don’t pay for your loan, the bank reports to the major credit bureaus that you defaulted on the vehicle’s loan. The loan remains open with a balance for future creditors to see, most likely affecting future loan options and interest rates.

The bank can sue you for the amount due, eventually garnishing your wages to satisfy the debt. Be sure to have adequate coverage in place for future loans, as the financial consequences can prove substantial.



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