In 2015, there were over 6 million traffic accidents in the US that resulted in injury, property damage, and death. In a country with 218 million registered drivers on the road, the number of accidents comes as no surprise.
When drivers fall on hard financial times and need help making car payments, they may seek help from a car title lender. But what happens to that loan when a car is totaled in an accident?
If you’re one of the 107 million American who has a car loan, and you were in an accident that left your car totaled, you need help navigating what to do. And if you’re considering taking out a title loan, there are a few things you should think about before you acquire it.
Below we discuss the ins and outs of car title loans and what to do when your car is totaled.
What is a Title Loan?
A car title loan is one kind of auto equity loan. It’s a high-interest personal loan that uses your vehicle’s title to qualify for money that you use to make your car payments.
When people are unable to make their car payment, they may approach an Auto Loan Store and give their car title, and sometimes a copy of their keys, to the lender. If you fall behind on loan payments, the company is then able to seize your vehicle. They’ll resell it to recoup their losses from the loan you couldn’t pay.
These loans usually have monthly payment terms and always involve interest. To apply for one, you typically need:
- A car title to a qualifying car that’s registered in your name
- A government-issued ID
- Proof of income to demonstrate you can make monthly payments
- Proof of residence
When you take out a car title loan, your car is the collateral that secures the loan. When your collateral is damaged, like in a car wreck, the terms of the title change. If your car is totaled, it likely doesn’t qualify as collateral anymore.
Most title loan lenders will require that you have liability insurance as minimum insurance coverage. This ensures that you’ll have some form of money to pay back the loan should something happen.
Consider Full Coverage Insurance
Vehicle accidents are exactly that… accidents. They’re not something you can prepare for. There are things you can do to make sure you’ll be in a better situation should something happen.
Before you take out a car title loan, you should consider your insurance coverage. The minimum is usually not enough to help you out of a bad situation. Remember that insurance payments paid now protect your current and future assets.
When your insurance coverage isn’t enough to cover all the damages that occur in an accident, you could face litigation. The other people involved in the accident can sue you to cover the costs of their bodily injuries as well as their property damage. This not only costs you the money you’re being sued for but also extensive legal fees.
The Problem With Minimum Insurance
Many people who are not able to make payments on their car because of their financial situation go for the minimum insurance required by law. This covers short-term costs in terms of low insurance payments. But it doesn’t account for the potential costs incurred when something actually happens,
Each state has their own minimum requirements insurance. Without meeting those, you can’t legally drive.
Every state except New Hampshire requires that you have liability insurance at the very least. In New Hampshire, you can drive without insurance but you’re still held financially responsible should something happen.
What Is Liability Insurance?
Liability insurance only covers the injuries and damages incurred by a third party. Meaning that with liability insurance, your property and your injuries aren’t covered.
Liability insurance covers two things: bodily injury liability and property damage liability.
If you’re at fault in an accident, bodily injury liability coverage pays for the injuries of the other person or people involved in the accident. If you’re sued for damages, it provides a minimum legal defence.
Property damage liability will cover the cost of damages to the property of the other person or people involved. This includes damage done to a car or damage done to property should the accident involve driving into a fence, for example.
With this minimum insurance coverage, any damage to your own vehicle and any medical expenses you incurred as a result of injury will not be covered by your insurance provider if you’re at fault.
Why is Full Coverage Important?
Having more coverage than the minimum protects the investment you’ve made in a vehicle. It also ensures that your injuries and medical expenses are covered when you’ve caused an accident.
There is no such thing as a “full coverage” policy. This refers to an insurance policy that provides several forms of coverage for your vehicle.
Good insurance coverage will include the minimum state-required liability insurance. Meeting this minimum requirement is the law. Any full coverage policy will include this.
In addition to the minimum, you should have collision coverage. This will help cover any damage to your vehicle.
You may also consider taking out comprehensive coverage. This provides insurance coverage for vandalism, theft and other damages that aren’t related to a collision.
Having all of these forms of insurance coverage will cost you more money in insurance payments. However, if you’re taking out a car title loan, you’ll want to ensure you can pay the loan if your car is totaled.
Know the Value of Your Vehicle
Knowing the value of your vehicle is something you should do whether or not you’re taking ou a car title loan. If you’re ever in an accident, knowing what your car is valued at can help you negotiate with the insurance company.
Insurance adjusters are in the business of giving you as little as they possibly can. They’ll likely offer you a settlement for less than your car is worth to save them paying out more than they want to.
If an insurer offers you a settlement and you know how much your car was worth before it was damaged, you’re in a much better position to get more money. Having proof of how much your vehicle was valued at will go even further. Make sure you get your valuation in writing.
Contact Your Insurance Company to Find Out if Your Car Is Totaled
There are a few steps to take immediately following an accident when you’re in any car accident. This includes checking for injuries, getting out of the way of traffic, and exchanging insurance information with those involves.
Then, you need to contact your insurance company. Your insurance company will help you determine whether your car is totaled and can be considered a total loss. A total loss means your car isn’t worth the money it will take to repair it.
How a total loss is defined should be in your insurance contract. Review it to make sure you know the policy.
Insurance adjustors follow different guidelines for determining what is considered a total loss. Usually, a total loss is calculated by running the cost of repairs required again the total vehicle’s worth. If the cost of repairs is above a certain percentage of the vehicle’s value, it’s considered a loss.
Typically, if the cost of repairs is more than 80% of your vehicle’s value, your insurance company will write it off.
Don’t Mention the Title Loan Until After You’ve Reached A Settlement
When speaking with your insurance adjuster, don’t mention that you have a title loan on the car. You are not legally required to volunteer this information or even to admit to it.
If the adjuster asks about a title loan or any liens on the vehicle, simply tell them that you’d like to reach a settlement before discussing any particulars regarding your financial situation.
If an insurance adjuster knows you have a title loan on your vehicle, they may think they may offer you a lot less. They’re counting on the fact that the looming loan repayment will tempt you into accepting less than you’re entitled to.
Keep Paying Your Loan
Once you’ve contacted your insurance provider, you’ll want to notify your loan provided that your car is totaled. When your car is totaled, you know longer have the collateral that you used to secure the loan. Your lender can explain the details of the agreement and how it will change as a result of the accident.
Even while your claim is being investigated and before your claim is settled, you have to keep paying your loan and payments must be made on time.
What If You Don’t Have Insurance to Cover the Balance?
With a car title loan, the car is the collateral. A lender counts on being able to repossess that collateral should you default on the loan. By selling the vehicle, they’re able to cover the balance of the loan they gave you.
When the collateral no longer exists, the title loan company no longer has that security.
If you’re required to pay the balance of your loan in full and you’re insurance won’t help you make those payments, you should ask to renegotiate the loan. First, as if you can renegotiate without collateral.
If the title loan company can’t renegotiate without collateral, you may ask a co-signer to help you with the payments. Or, you can find a new form of qualifying collateral. The only other option is to default, which will have a major impact on your credit.
Regardless of whether or not you’re covered by insurance, the onus to pay back the loan is ultimately on you.
More Information on Cars
When your car is totaled, it’s a devastating experience. Worrying about a car title loan can add to that stress. But following the above guide can help you navigate the process and set you up for the best outcomes.
For information on all things car-related, check out our blog.