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Buying a New Car After a Total Loss: What You Need to Know

When damage to a car from an accident costs more money to fix than what the car is worth, it’s typically considered a “total loss.” If you were in a car accident or your car was damaged by an act of nature, such as a hailstorm or falling tree, your first step is always to file a claim with your insurance company. They will assess the damage to your car and determine if it’s a total loss.

If your car is totaled, your insurance company will pay you the actual cash value of your totaled car if you have the right coverage. Collision insurance protects your car in the event of a collision, while comprehensive insurance covers acts of nature such as hailstorms and falling trees.

Unless you still owe money on your car, you can take that check and apply it toward buying a new car after a total loss.

How to get a new car after total loss

Before you can buy a new car after a total loss, you need to take care of the one that was totaled.

  • First, reach out to your insurance company and file a claim.
  • Your insurance company will send out an insurance adjuster to look at the damaged vehicle.
  • If the adjuster declares that your car is totaled, the insurance company will calculate the actual cash value of your car, which is the amount it would have been worth had it not been damaged. As long as you have the proper coverage, the insurance company will send you a check for this amount. In general, the proper insurance coverage includes collision or comprehensive, depending upon the type of accident.
  • Any proceeds you are entitled to will be sent to your lien holder first. This check will pay off or reduce your car loan on the totaled vehicle. If there is any money left over, your lender will send you a check. If you don’t owe any money or if the proceeds were enough to cover your loan value, you can use the remainder toward your new car purchase.
  1. Contact your insurance and submit a claim
  2. Find out if your car is a total loss
  3. Locate your title and release your vehicle
  4. Research your total loss car value
  5. Sign paperwork and receive a payment to put toward a new car

1. Contact your insurance and submit a claim

If you’ve been in a car accident, contact your insurance company immediately. They will begin the process of filing a claim. They will ask you for detailed information about your accident such as where it occurred and who was involved. Forward any contact or insurance information that you received from the other driver to your insurance company when filing a claim.

In connection with filing a claim, your insurance company will send out an insurance adjuster to assess the damage to your car.  If the adjuster considers the damage to your car to be a total loss, your insurance company will evaluate your coverage. If you have the proper coverage in place, a check for the actual cash value, less any deductible, will be sent out. If you owe money on your car, the insurance company will send this to your lender directly. However, if your car is paid off, the check will be sent to you.

2. Find out if your car is a total loss

A car is totaled when the cost to repair the damage is greater than its value. How a total loss is determined can vary based on where you live. Some states consider a vehicle a total loss when the damages are greater than a percentage of the car’s value. For example, a car that has damages totaling at least 75% of its value is considered a total loss in Alabama but repairable in Colorado, where the damage threshold is 100%. Other states do not have these requirements and leave the decision up to the insurance company. States like California and New Jersey allow the insurer to calculate the total loss based upon a formula. As long as the loss is greater than the actual value, it is considered a total loss.

3. Locate your title and release your vehicle

As part of your insurance settlement, you must release your vehicle to your insurance company. You release your vehicle by physically giving it to the insurance company along with your title. If you own your car, you will need to sign the title over to the insurance company. Be sure to remove all of your belongings before turning your car over.

Car owners who are unable to locate their title can contact their local DMV to obtain a copy.

4. Research your total loss car value

An insurance company will determine the actual cash value of your totaled car by evaluating your car’s age, mileage and overall condition. They will also determine the car’s resale value and compare this with similar cars for sale in your area. A car with a salvaged title may require an independent appraisal to determine its resale value.

You can also get an idea of the value of your totaled car by comparing similar cars for sale in your area. Online automotive resources, such as Kelley Blue Book or Edmunds, can help you find listings in your area.

5. Sign paperwork and receive a payment to put toward a new car

In order to complete your claim, you must sign a total loss car insurance settlement agreement with your insurance company where you are agreeing to the value of your totaled car. This may be delivered to you in-person, mailed to your home or sent via email.

Once you’ve signed the agreement your insurance company will release the check, which should be received by either yourself or the lien holder within a week.

  • If you owe money on your car, the check will be sent directly to the lienholder. If the check is sent directly to your lender, they will apply this toward your loan to pay off the car.  If there is any money left over, either your lender or the insurance company will mail you a check for the remaining amount.  When the insurance proceeds aren’t enough, you are still responsible to pay off whatever is left on your car loan. When a settlement is more than what you owe on the car, the insurance company may issue a check to the lienholder for the payoff amount and the remaining balance to you. The check may also be made out to both parties, which means you will need to coordinate the payoff with the lienholder. The lienholder may ask you to sign the check and send it to them. Once you do that, the lienholder will endorse the check on their end and apply it to your loan balance. Any money left over will be sent to you from the lender. If the insurance money was not enough to pay off your loan, you are still responsible for whatever is left.
  • If you do not owe money on the car, the check will be sent to you directly. You can then put the amount that you receive toward the purchase of a replacement vehicle.

How much does insurance pay toward a new car?

The amount of insurance payments that are paid toward a new car depends on a few factors:

  • When the actual cash value of your totaled car is more than what you owe, you can apply that difference toward a new car purchase.
  • Collision insurance will cover the actual cash value of your totaled car in the event of a collision. Comprehensive insurance will cover the actual cash value of your car if it’s totaled as the result of an accident such as a tree falling, inclement weather or fire.
  • The age and condition of your car will influence the actual cash value you receive if your car is totaled.  A new car can lose up to 20% of its value the first year, which can reduce what you receive if it’s totaled.
  • If you carry new car replacement insurance, this may help you to get a brand-new car of the same make and model. While collision and comprehensive coverage will pay up to the actual cash value of your car, new car replacement insurance covers the cost of a brand-new car. This coverage may be limited by the age of the car. For example, ValuePenguin found that new car replacement coverage may cost an extra $15 per month for a $60,000 luxury sedan, according to data from Farmers Insurance.

Do I still have to pay a loan on a total loss car?

If you have a loan on the car that is totaled, you are still responsible to pay it off in its entirety. When an insurance company offers a settlement, it is based on the actual cash value of your car and not on the amount that you owe. Owing more on your car than what it is worth is commonly known as being “underwater” or “upside-down.”

Being underwater on your car loan may interfere with your ability to finance another car. If you tack  the amount you still owe on your totaled car onto your new car loan, you will still owe more than what your car is worth. It may even impact your ability to get financing at a good rate.

When the insurance settlement is not enough to pay off the entire amount that you owe on the car, you will need to pay the difference. However, you may have additional coverage, such as gap insurance, that can help. This optional coverage will help you pay for the difference between what you owe on a car and the actual cash value of the totaled car. This can apply to either a loan or a lease.

More FAQs: Buying a new car after total loss

What if the total loss was not my fault?

If you were involved in a car accident that was not your fault and your car was declared totaled, the collision insurance portion of your policy will kick in to cover the actual cash value. If you live in a “no fault” state, your insurance company may pursue damages from the other driver’s policy. If your insurer succeeds in recovering money from the other driver’s policy, you may be reimbursed for the deductible you paid. (That’s the amount that was subtracted from the money you received.)

If your car was totaled in an accident that was not the result of a collision, such as a tree falling on it or a fire, your comprehensive coverage will be in effect. This works in the same way as collision coverage where it will cover the actual cash value of your car.

Can I negotiate with my insurance company on the total loss payout?

If you think the payout for your total loss settlement is too low, you can try to negotiate a higher amount. You can hire an independent appraiser to evaluate the actual cash value of your car and present the findings to your insurance company. If they are unwilling to work with you, consider reaching out to your state’s department of insurance to see if you might have options through their customer representative. Your last option would be arbitration or litigation, however, you should evaluate the cost before  pursuing this route as legal fees are expensive.

How much does insurance go up after a total loss accident?

Even though you’ve had an accident that resulted in a total loss of your car, it doesn’t necessarily mean that your rates will increase. Insurance companies look at many factors such as who was at-fault and your driving history. If you were not at-fault, you may not see any increase in your insurance premiums.

If you were at fault, you can expect your insurance premiums to rise, but the amount is largely based upon your insurance company. Drivers who live in Massachusetts that have been involved in four qualifying accidents in the past three years can expect to see their rates increase an average of 2.14 times. Under the same scenario in Alabama, the average rate typically increases 2.25 times.

Will a total loss affect my credit?

A totaled car will not directly impact your credit. However, if you financed your car and still owe money on it, even after the lien holder received the actual cash value payment, you still need to pay your monthly payments. If you fall behind or stop paying your loan, it will impact your credit.

 

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