Almost one in seven vehicles involved in an accident is declared totaled, according to the latest CCC Information Services update. If your vehicle is beyond repair, you might wonder what you’re going to do next and how you’re going to pay for a new car. If you happen to be a car enthusiast, you might even be looking forward to modifying your damaged (or replacement vehicle) and wondering if there’s a way to come up with enough funding for upgrades.
What Happens When Your Vehicle Gets Totaled?
As Kelley Blue Book explains, insurance companies declare your car totaled under certain conditions where repairs would not be cost-effective, safe or legal. Specifics vary by state and insurance provider, and your agent should help you with details. But a general point to understand is that an insurance company will declare a total loss if projected repair and salvage costs exceed your vehicle’s actual cash value or a certain value percentage set by the state. Because of this calculation method, a car with lower value can sustain less damage before being declared totaled than a more valuable vehicle.
Also, if you’re still repaying your loan, you’re still responsible for the balance, even if the amount owed is more than your insurance provider reimburses you. This can leave you paying for a car you can’t drive while you’re trying to afford a new one.
Gap Insurance and Other Options
One way to prevent this dilemma is getting gap insurance, where your provider covers the difference between your vehicle’s value and your remaining loan. You only need gap insurance when you owe more than your car is worth, a situation known as “negative equity.” You can check if there’s a negative equity gap in your loan cycle by looking up your vehicle’s expected depreciation rate and comparing this with a loan calculator. Gap insurance may already be included in your lease, sometimes under another name, so check if you need it before buying it separately.
If you don’t have gap insurance, there are other alternatives, including:
- You could arrange for a lender to roll the remainder of your old loan into a new auto loan
- Try crowdfunding as a means to finance a new car, as recent Chrystler ads suggest
- If you receive regular payments from an annuity or structured settlement, you may be able to sell your future payments for a lump sum of cash now.
If you want to upgrade your totaled vehicle or even your new car, Nathan Morris of Tuner University provides a guide to five of the most cost-efficient modifications you can make without undue risk. He recommends prioritizing tires and looking at sway bars next before considering other modifications. For those who want to improve their vehicle without permanently modifying it, Popular Mechanics suggests some reversible modifications such as custom wheels, window tints and vinyl wraps.