What Happens If You Get Into an Accident With a Financed Car?

When you purchase a vehicle using a loan, the car is considered “financed,” meaning a lender, known as the lienholder, holds a legal claim on the vehicle until the loan is fully repaid. Understanding the implications of an accident with a financed car is important for managing potential financial outcomes.

Initial Actions After an Accident

After a car accident, your immediate priority is ensuring everyone’s safety. Check for injuries and, if necessary, contact emergency services by calling 911. If your vehicle is drivable and safe to move, relocate it out of traffic to prevent further incidents.

After ensuring safety, gather information from all parties involved, including names, contact details, driver’s license numbers, vehicle information, and insurance policy numbers. Document the scene by taking photographs and videos of the vehicles, damage, location, and road conditions. Report the accident to the police, as an official report provides an objective record important for insurance claims and potential legal proceedings. Ask responding officers where to obtain a copy of the accident report.

Notifying Parties and Initiating Claims

After the scene is secured and documented, promptly notify your insurance company about the accident. Most providers recommend reporting within 24 hours, typically by contacting your agent or using an online portal. When reporting, provide all details and documentation collected at the scene, such as the police report number, photos, and information about other involved parties. Cooperating fully with your insurer’s investigation, which may involve providing records or vehicle inspection, helps expedite the claims process.

Your lender, the lienholder, must also be informed about the accident. This notification is a contractual obligation, ensuring they are aware of the vehicle’s status and any potential impact on their collateral. The lender will likely work directly with your insurance company regarding the outstanding loan amount. The insurance company will need the lienholder’s information for proper handling of any payout.

Insurance Assessment and Financial Outcomes

Your insurance company will assess the damage to your vehicle to determine if it is repairable or if it should be declared a total loss. An adjuster will inspect the car, and if the cost of repairs exceeds a certain percentage of the vehicle’s value, or if it’s deemed unsafe to drive even after repairs, the insurer will classify it as a total loss. For a total loss, the insurance company calculates the Actual Cash Value (ACV) of your vehicle, which represents its market worth just before the accident, factoring in depreciation due to age, mileage, and condition. The ACV will typically be less than what you originally paid for the vehicle.

If your car is repaired, the insurance company will cover repair costs, minus your deductible, either by paying the shop directly or issuing a check to you, which may require the lienholder’s endorsement. If your vehicle is declared a total loss, the insurance payout for the ACV is typically made out to both you and the lienholder. The lienholder has a legal right to be paid first from this settlement to cover the outstanding loan balance. If the insurance payout exceeds the loan balance, remaining funds are disbursed to you. Conversely, if the ACV is less than the amount you still owe, you are responsible for paying the difference.

Managing Your Loan Post-Accident

Regardless of your vehicle’s condition or the ongoing insurance claim, your loan payments generally continue without interruption. It is important to maintain these payments to avoid negative financial consequences. If the insurance payout for a totaled vehicle does not cover the full outstanding loan balance, you will be responsible for this remaining debt.

To mitigate this financial risk, many drivers opt for Guaranteed Asset Protection (GAP) insurance, an optional coverage designed for financed vehicles. GAP insurance covers the “gap” between the vehicle’s Actual Cash Value (ACV) paid by your standard collision or comprehensive insurance and the remaining balance of your loan or lease if the car is declared a total loss. This coverage helps prevent you from owing money on a vehicle you no longer possess. Without GAP insurance, any shortfall between the insurance settlement and your loan balance becomes your direct financial responsibility.

Failing to meet loan obligations, even after an accident, can lead to late payment fees and a negative impact on your credit score. Consistent missed payments can severely affect your credit standing and potentially lead to repossession.