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    Will An Accident Affect Your Ability To Get a Car Loan?

    By sbanderas | December 10 2021

    Dealing with the aftermath of a car accident is never easy, and the last thing that you would want to deal with is a complicated process to replace your car. In a perfect world, you should be keeping a fund during rainy days for emergencies such as this one. However, not everyone is prepared. If you are facing a car replacement after a car accident and you have bad credit, it can be really tough. 

    When you had a car accident and your vehicle is totaled, the amount that you can get back from your auto insurance policy depends on the coverage that you have plus the laws in your state. In the event that you had an accident and if you have full coverage, your insurance typically pays the actual cash value of the car or the amount that it would cost for you to repair your vehicle, minus the deductible, whichever is less. 

    How do auto insurance companies determine that your car is worth fixing or not?

    A question in mind that you would want to ask yourself after a car accident is if your car is worth the fix. Determining if the car is worth fixing or not varies from different insurance companies. Typically, if the amount of damage exceeds 80 percent, or it is more than the vehicle’s value, the insurance company considers it a total loss. Cars are depreciating assets, so it is possible that the actual cash value of your vehicle is less than what you actually owe on your loan. In a situation where your car is underwater, you are actually required to sign the check coming from the insurance company and give it over to your lender and pay any balance due out of your own pocket, unless you have GAP insurance. If your vehicle’s value is more than the loan balance, then you can keep the difference. 

    Once you know how much you have from your car’s loss, and depending on the situation of your credit, you should be able to know if you need to go via a special finance dealer, or visit a traditional dealer to get another car loan and replace your vehicle. 

    Process of making payments after a car accident

    A car loan is a legally binding contract. Upon signing for a car loan, you automatically assume responsibility for the funds loaned in purchasing the car. From this financial assumption, you are obligated to repay the said amount depending on the terms of the contract. However, anything that happens to the car once you purchase it does not nullify your legal responsibility to repay the loan even if the said car is involved in an accident. 

    A lot of car accidents are just minor and do not necessarily require repairs. Unfortunately, in the event that certain repairs are necessary, and the cost to repair the car exceeds its value, your insurance company will have to “total” the car. If this happens, the insurance company will recover the car and send you a check for the vehicle’s current fair market value. It may be less than you currently owe on the vehicle which may mean that you will still make payments on a car you no longer possess. Dealing with the legal matters of this is stressful, and this is a good time to decide when to hire a lawyer after an accident. Consulting professional car accident lawyers can make these circumstances feel more manageable. Finding the best lawyers for you can be helpful in dealing with your insurance company and/or loans. 

    Risks in failing to make a payment 

    It is very important to make payments on a car following an accident because failure to do so, whether a car is operational or not, can result in repossession. To recover the unpaid loan balance, the lender will attempt to sell the car. When the full balance is not recovered, or the car itself is unavailable for recovery, the lender may have to file a lawsuit against you for the unpaid or outstanding amount. As long as your state permits it, a deficiency judgment can be imposed against you, and if you are also employed, the lender may request to withhold your paycheck from the courts until the debt is paid. 

    How to prevent these from happening?

    It is best to consider opting for gap insurance especially when you have more debt on your car than its fair market value and you are very concerned with the possibility of an accident. 

    Gap insurance can be bought through your lender or a car insurance provider. When a car accident happens and your car got totaled, the gap insurance policy will kick in and cover the unpaid loan balance once you receive the price of the insurance company’s fair market value for the car. Numerous insurance providers require that you maintain collision and comprehensive coverage on the car so that you will be eligible for gap insurance. 


    Continuously making regular payments on your car after an accident will give you an assurance that you will retain legal possession of the car. However, if you intend to default on the loan and the car was repossessed, the said repossession will appear on the public records of your credit report. There will also be a subsequent deficiency judgment that will appear on your credit file. Repossessions and subsequent deficiency judgments have a negative on your credit score and they will remain on your report for several years to come, even if the full balance owed to the lender was already paid. Adding to that, it will be difficult for you to prove to acquire financing for future cars, if not impossible, with a repossession on your credit report. 

    Recovering from a car accident is one thing, and settling the finances and all the legal actions is another. It really takes a lot to take in and will really require a lot of time and effort from you, not to mention a lot of money. It is really important to have the foresight that things like this could happen and you should plan ahead accordingly. 

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