You can ease your financial burden by taking a proactive approach, both when you purchase the vehicle as well as in how you handle the claim settlement process.
Circumstances
You may be "upside down" in your car loan, meaning you owe more than it is worth for a number of reasons. You may have rolled an existing loan for your trade-in into the one for your new vehicle when you obtained financing, resulting in a larger loan amount.Your insurance settlement may not be Sufficiently to stipend off your auto loan.Having your vehicle declared a total loss by your insurer after an accident is bad enough; it can be even worse if you owe more to your lender than what the vehicle is actually worth. Unfortunately, you are still required to make up any balance you owe.
Also, a new vehicle can depreciate in value by as much as Twenty percent as soon as you drive it off the lot, so you may find yourself owing more than it is worth almost immediately depending on how much of a down payment or a trade-in you used.
Getting Maximum Value
When your insurance company "totals" your vehicle after an accident, it will offer to pay you what it considers to be its actual cash value, which takes into account depreciation and mileage. Each insurance company has its own method of determining ACV, but you can be sure that you will be offered the lowest amount the company thinks it is legally obligated to pay. Most insurance companies are willing to negotiate from their initial settlement amount, so it is important that you do not accept the adjuster's initial offer.
Paying the Balance
After you agree on a settlement amount, the insurer will satisfy any liens against the vehicle, such as the amount owed to the lender. Anything left over will be paid to you. If the amount is not enough to pay off the loan, you must make up the difference out of your own pocket. If you don't have the finances to do so, you may need to resort to other methods. Your best bet may be to contact the lender and see what type of payment arrangements you might be able to make.
Gap Insurance
To protect yourself in a situation where you are upside down in your auto loan, consider purchasing gap insurance when you buy the vehicle. As the name implies, gap insurance will pay the balance between what the vehicle is worth and what you owe, which can eliminate a possible financial crisis. If you finance through the dealer, it will probably offer to sell you gap insurance and add the premium to your monthly payment, although it is usually cheaper to purchase it from a car insurance company.
